Using the utility maximization rule, if Vicky's marginal utility of the last orange consumed is 20 and her marginal utility of the last pineapple consumed is 80, what is the price of pineapples if the price of oranges is $1 and Vicky has maximized her utility?
A) $4
B) $2
C) $1
D) $0.25

Question

Quizplus · Accepted Answer

The utility maximization rule states that consumers allocate their income so that the last dollar spent on each good or service yields the same marginal utility. Given the marginal utility of the last orange is 20 and the price is $1, the marginal utility per dollar spent on oranges is 20. For Vicky to have maximized her utility, the marginal utility per dollar spent on pineapples must also be 20. Given the marginal utility of the last pineapple is 80, the price of pineapples must be $4 to achieve a marginal utility per dollar of 20 (80 MU / $4 = 20 MU per dollar).

Using the Utility Maximization Rule, If Vicky's Marginal Utility of the Last