Suppose the marginal utility for the last pencil you buy is 36 and each costs $1, whereas the marginal utility of the last pad of paper you buy is 300 and costs $2. Are you maximizing utility?
A) No. You need to buy more pencils and less paper.
B) No. You need to buy more paper and fewer pencils.
C) Yes.
D) No. You need to buy less paper and fewer pencils.

Question

Quizplus · Accepted Answer

To maximize utility, the consumer should equalize the marginal utility per dollar spent across all goods. Here, the marginal utility per dollar for pencils is 36 ($1 per pencil) and for paper is 150 (300 MU for $2). Since the marginal utility per dollar is higher for paper, buying more paper and fewer pencils would increase overall utility.

Suppose the Marginal Utility for the Last Pencil You Buy