Suppose that a haircut will give Dawn 2,000 units of utility and cost her $40, whereas a manicure costs $25 and yields 1,000 units of utility. Most likely Dawn should:
A) choose the haircut because each unit of utility will cost her $0.02 compared with $0.025 for the nails.
B) choose the nails because she will obtain 50 units of utility per dollar compared with 40 units of utility per dollar for the haircut.
C) be indifferent between the two choices.
D) choose the haircut because she will receive 50 units of utility per dollar compared with 45 units of utility per dollar for the nails.

Question

Quizplus · Accepted Answer

The cost per unit of utility for the haircut is $40/2000 = $0.02, while for the manicure it is $25/1000 = $0.025. Therefore, the haircut provides more utility per dollar spent.

Suppose That a Haircut Will Give Dawn 2,000 Units of Utility