Daisy is consuming X and Y so that she is spending her entire income and MU_x/P_x = 12 and MU_y/P_y = 10. To maximize utility, she should A) continue to consume the same amount of X and Y since she is already maximizing utility. B) consume less of both X and Y. C) consume more X and less Y. D) consume less X and more Y.

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Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for all goods. Since MUx/Px > MUy/Py, Daisy should consume more X and less Y to equalize the ratios.

Daisy Is Consuming X and Y So That She Is