Lisa is spending all of her income on compact discs and downloadable games for her smart phone. She finds that the marginal utility from the last compact disc she buys is 30 and the marginal utility from the last downloadable game is 10. The price of a compact disc is $15 and the price of a downloadable game is $5. Lisa should
A) increase her consumption of compact discs.
B) increase her consumption of downloadable games.
C) not change her consumption of downloadable games and compact discs.
D) decrease the price of downloadable games.

Question

Quizplus · Accepted Answer

Lisa is maximizing her utility because the marginal utility per dollar spent is equal for both goods: 30/15 = 2 and 10/5 = 2.

Lisa Is Spending All of Her Income on Compact Discs