Assume that you allocate your income to calzones and juice and that youhave not yet spent your entire budget.If the marginal utility of a fourthcalzone is 100 and the marginal utility of a third glass of juice is 50, youwould
A)eat a fourth calzone because it has a higher marginal utility
B)drink a third glass of juice because you've had less juice
C)consider the total utility received so far from calzones and juice before deciding what to consume
Next
D)consider the relative prices of calzones and juice before deciding what to consume next
E)consider whether or not marginal utility is diminishing before deciding what to consume next

Question

Quizplus · Accepted Answer

In order to make the best choice, you need to consider the relative prices of calzones and juice. If the price of a calzone is higher than the price of a glass of juice, then it may be more beneficial to choose the juice, even though its marginal utility is lower. Conversely, if the price of a calzone is lower than the price of a glass of juice, then it may be more beneficial to choose the calzone, even though its marginal utility is higher. Therefore, choice D is the best option.

Assume That You Allocate Your Income to Calzones and Juice