Billy likes candy bars and popcorn.Candy bars sell for $0.50 each and popcorn sells for $1 a bag.Currently he is in consumer equilibrium with marginal utility per dollar on popcorn equal to 100.What is the marginal utility per dollar on candy bars?
A)50
B)100
C)200
D)25
E)0.5

Question

Quizplus · Accepted Answer

In consumer equilibrium, the marginal utility per dollar spent on each good must be equal. Therefore, if Billy has a marginal utility per dollar on popcorn of 100, he must also have a marginal utility per dollar on candy bars of 100. To see why, suppose the marginal utility per dollar on candy bars was, say, 200. This would mean that Billy could increase his total utility by purchasing more candy bars and fewer bags of popcorn, contradicting the initial assumption that he was already in consumer equilibrium. Thus, the answer is B, 100.

Billy Likes Candy Bars and Popcorn