If Raul's marginal utility per dollar from bread is 25 and the marginal utility per dollar from butter is 30,
A) Raul should purchase more butter and less bread to increase his total utility.
B) Raul's marginal utility from bread will rise if he buys less bread.
C) Raul's marginal utility from butter will fall if he buys more butter.
D) Only answers B and C are correct.
E) Answers A, B and C are correct.

Question

Quizplus · Accepted Answer

The principles of marginal utility indicate that to maximize total utility, a consumer should allocate their budget in a way that the marginal utility per dollar spent on each good is equal. Since Raul's marginal utility per dollar from butter is higher than from bread, he should indeed buy more butter and less bread (A). As he reduces his consumption of bread, the marginal utility from bread will increase due to the law of diminishing marginal utility (B). Similarly, as he increases his consumption of butter, the marginal utility from butter will decrease for the same reason (C). Therefore, all three statements (A, B, and C) are correct.

If Raul's Marginal Utility Per Dollar from Bread Is 25