If Mr. Smith thinks the last dollar spent on shirts yields less satisfaction than the last dollar spent on cola, and Mr. Smith is a utility-maximizing consumer, he should:
A) decrease his spending on cola.
B) decrease his spending on cola and increase his spending on shirts.
C) increase his spending on shirts.
D) increase his spending on cola and decrease his spending on shirts.

Question

Quizplus · Accepted Answer

To maximize utility, a consumer should allocate spending so that the marginal utility per dollar is equal across all goods. If the last dollar on shirts yields less satisfaction than the last dollar on cola, Mr. Smith should spend more on cola and less on shirts to equalize the marginal utility per dollar between the two.

If Mr Smith Thinks the Last Dollar Spent on Shirts Yields