Suppose Paul has chosen a combination of two goods, A and B, such that the marginal utility per dollar spent for good A (MU_A/P_A) is .6 and the marginal utility per dollar spent for good B (MU_B/P_B) is 1. To increase utility with the same amount of money, Paul should: A) increase the number of B consumed and decrease the number of A consumed. B) increase the number of A consumed and decrease the number of B consumed. C) increase the number of both A and B consumed. D) do nothing; he cannot increase total utility.

Question

Quizplus · Accepted Answer

Paul should increase the consumption of good B, where the marginal utility per dollar is higher, and decrease the consumption of good A to maximize his total utility with the same budget.

Suppose Paul Has Chosen a Combination of Two Goods, a and B