Suppose Joe is maximizing total utility within his budget constraint.If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20, then, using the rule of equal marginal utility per dollar spent, the extra satisfaction received from the last shirt must be
A)2,000 units of utility.
B)500 units of utility.
C)100 units of utility.
D)80 units of utility.

Question

Quizplus · Accepted Answer

The rule of equal marginal utility per dollar spent states that the marginal utility per dollar should be equal for all goods. For jeans, it's 100 units/$25 = 4 units per dollar. For the shirt, it should also be 4 units per dollar, so 4 units x $20 = 80 units of utility.

Suppose Joe Is Maximizing Total Utility Within His Budget Constraint