Assume that an individual consumes only hotdogs and colas and that the last hotdog consumed yields 15 utils and the last cola 10 utils. If the price of a hotdog is $1 and the price of a cola is $.50, we can conclude that the:
A) consumer should consume more hotdogs and less cola.
B) price of hotdogs is too high.
C) consumer should consume fewer hotdogs and more cola.
D) consumer is in equilibrium.

Question

Quizplus · Accepted Answer

The consumer should consume fewer hotdogs and more cola to equalize the marginal utility per dollar spent on each good. The marginal utility per dollar for hotdogs is 15 utils/$1 = 15 utils per dollar, and for cola, it is 10 utils/$0.50 = 20 utils per dollar. To maximize utility, the consumer should adjust consumption to equalize these ratios.

Assume That an Individual Consumes Only Hotdogs and Colas and That