If a consumer purchases a combination of commodities a and b such that MU_a/P_a = 50 and MU_b/P_b = 40, to maximize utility, the consumer should buy: A) less of both a and b. B) more of both a and b. C) more of a and less of b. D) less of a and more of b.

Question

Quizplus · Accepted Answer

The consumer should buy more of a than b because the marginal utility per dollar spent on a is higher than the marginal utility per dollar spent on b. The ratio of marginal utilities to prices is 50 for commodity a and 40 for commodity b, indicating that the consumer gets more satisfaction per dollar spent on commodity a than on commodity b. Therefore, to maximize utility, the consumer should buy more of a and less of b.

If a Consumer Purchases a Combination of Commodities a and B