-Steve has two goods he can spend his income on, skiing and skating, and his marginal utilities from each are in the table above. The price of each unit of skiing is $10 and the price of each unit of skating is $10. Steve has $40 to spend. What quantities of skiing and ice skating will Steve consume to maximize his utility?
A) 0 units of skiing and 4 units of skating
B) 2 units of skiing and 2 units of skating
C) 4 units of skiing and 0 units of skating
D) 2 units of skiing and 4 units of skating

Question

-Steve has two goods he can spend his income on, skiing and skating, and his marginal utilities from each are in the table above. The price of each unit of skiing is $10 and the price of each unit of skating is $10. Steve has $40 to spend. What quantities of skiing and ice skating will Steve consume to maximize his utility?
A) 0 units of skiing and 4 units of skating 
B) 2 units of skiing and 2 units of skating 
C) 4 units of skiing and 0 units of skating 
D) 2 units of skiing and 4 units of skating

Quizplus · Accepted Answer

To maximize utility, Steve should equalize the marginal utility per dollar spent on each good. Given the prices and budget, 2 units of skiing and 2 units of skating will maximize his utility within his budget constraint.

-Steve Has Two Goods He Can Spend His Income On