Danny has $12 to spend on two goods: pies and soda. The price of a pie is $4, and the price of a can of soda is $2. To maximize his utility, Danny buys
A) the combination that gives him equal total utility from pies and soda.
B) 2 pies and 2 cans of soda.
C) only sodas because they are less expensive.
D) the combination that gives him the same marginal utility per dollar spent on pies as on soda.

Question

Quizplus · Accepted Answer

To maximize utility, Danny should allocate his budget such that the marginal utility per dollar spent on pies equals the marginal utility per dollar spent on soda. This ensures that he is getting the most satisfaction from his limited budget.

Danny Has $12 to Spend on Two Goods: Pies and Soda