Advise Sarah how to maximize her utility if MU_A_=8, MU_B_=20, P_A₌₄ and P_B₌₅. A)Consume equal amounts of both goods. B)Consume more of good A and less of good B. C)Consume more of good B and less of good A. D)Lower the price of good B. E)Raise the price of good A.

Question

Quizplus · Accepted Answer

To maximize utility, Sarah should consume more of the good with the higher marginal utility per dollar. MU/P for A is 2 (8/4) and for B is 4 (20/5), so she should consume more of good B.

Advise Sarah How to Maximize Her Utility If MUA=8, MUB=20,

Advise Sarah How to Maximize Her Utility If MU_A_=8, MU_B_=20,