Joe consumes pizza and movies. He is currently spending his entire income and his marginal utility of pizza is 15 and his marginal utility of movies is 10. If the price of a pizza is $10 and the price of a movie is $5, then to maximize his utility Joe should
A) increase consumption of pizza and decrease consumption of movies.
B) increase consumption of movies and decrease consumption of pizza.
C) not change his current bundle of movies and pizza.
D) increase consumption of both goods.

Question

Quizplus · Accepted Answer

To maximize utility, Joe should equalize the marginal utility per dollar spent on each good. Currently, the marginal utility per dollar for pizza is 1.5 (15/10) and for movies is 2 (10/5). Joe should increase consumption of movies and decrease consumption of pizza to equalize the marginal utility per dollar.

Joe Consumes Pizza and Movies