Suppose the price of a soda is $2 each, the price of a hot dog is $3 each and the budget is $20. If the marginal utility of the fourth soda is 100 and the marginal utility of the fourth hot dog is 150, to maximize utility, a person will buy
A) 4 sodas and 4 hot dogs.
B) more hotdogs than 4 and fewer sodas than 4 because hot dogs provide more utility.
C) more sodas than 4 to increase their utility.
D) fewer sodas than 4 and more hot dogs than 4.

Question

Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for both goods. The marginal utility per dollar for the fourth soda is 100/2 = 50, and for the fourth hot dog is 150/3 = 50. Since they are equal, buying 4 sodas and 4 hot dogs maximizes utility within the budget.

Suppose the Price of a Soda Is $2 Each, the Price