Carla purchased cupcakes and milk until the marginal utility per dollar spent was equal for both goods. If the price of the cupcakes was $3 and the price of milk was $1.50, then
A) the marginal utility of the last cupcake purchased is two times greater than the marginal utility of the last unit of milk purchased.
B) the marginal utility of the last unit of milk purchased is two times greater than the marginal utility of the last cupcake purchased.
C) the marginal utilities of both goods are equal.
D) milk has a positive marginal utility, and cupcakes have a negative marginal utility.

Question

Quizplus · Accepted Answer

The marginal utility per dollar spent is equalized between the two goods for optimal consumption. Since the price of cupcakes is twice the price of milk ($3 vs. $1.50), the marginal utility of the last cupcake purchased must be twice as great as the marginal utility of the last unit of milk purchased to equalize the marginal utility per dollar spent between the two.

Carla Purchased Cupcakes and Milk Until the Marginal Utility Per