Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate is 100 and his marginal utility of vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximize his utility, Bobby should
A) buy more chocolate ice cream and less vanilla ice cream.
B) buy more vanilla ice cream and less chocolate ice cream.
C) not change his purchases between chocolate ice cream and vanilla ice cream.
D) buy no chocolate ice cream.

Question

Quizplus · Accepted Answer

To maximize utility, the ratio of marginal utility to price should be equal for both goods. For chocolate: 100/1 = 100, for vanilla: 200/2 = 100. Since both ratios are equal, Bobby is already maximizing his utility and should not change his purchases.

Bobby Consumes Only Chocolate Ice Cream and Vanilla Ice Cream