A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should
A)increase consumption of product Beta and decrease consumption of product Alpha.
B)increase consumption of product Beta and increase consumption of product Alpha.
C)increase consumption of product Alpha and decrease consumption of product Beta.
D)make no change in the consumption of Alpha or Beta.

Question

Quizplus · Accepted Answer

The utility-maximizing rule states that consumers should allocate their budget in a way that the last dollar spent on each good provides the same marginal utility. Here, the marginal utility per dollar spent on Alpha is 30/5 = 6, and for Beta, it's 40/10 = 4. Therefore, the consumer should increase consumption of Alpha and decrease consumption of Beta to equalize the marginal utility per dollar spent.

A Consumer Is Making Purchases of Products Alpha and Beta