Sarah consumes pizzas and hamburgers. The price of a hamburger is $1 and the marginal utility from her last hamburger is 5. Let P_p be the price of a pizza and MU_p be the marginal utility of pizzas. In consumer equilibrium, the ratio MU_p/P_p for Sarah's last pizza must equal A) 0.2. B) 1.0. C) 5.0. D) infinity.

Question

Quizplus · Accepted Answer

In consumer equilibrium, the marginal utility per dollar spent on each good should be equal. Since the marginal utility of the last hamburger is 5 and its price is $1, the ratio is 5/1 = 5. Therefore, MU_p/P_p must also be 5.

Sarah Consumes Pizzas and Hamburgers