You are consuming hot dogs and Cokes and believe you are maximizing utility for your entire budget of $12.The price of a hot dog is $2 and the price of a Coke is $2.Suppose the price of hot dogs rises to $4 and the price of a Coke remains at $2.You adjust your consumption of hot dogs and Cokes and believe you are once again receiving maximum total utility from the meal.Which one of the following can you conclude?
A)The total utility from hot dogs is maximized.
B)The marginal utilities from hot dogs and Cokes must be equal.
C)The marginal utility from hot dogs must rise compared to the marginal utility from Cokes.
D)You are purchasing 2 hot dogs and 2 Cokes.
E)You are purchasing 1 hot dog and 4 Cokes.

Question

Quizplus · Accepted Answer

When the price of hot dogs increases, to maximize utility, the marginal utility per dollar spent on hot dogs must equal the marginal utility per dollar spent on Cokes. Therefore, the marginal utility from hot dogs must rise relative to the marginal utility from Cokes to maintain this balance.

You Are Consuming Hot Dogs and Cokes and Believe You