Advise Sarah how to maximize her utility if MUA = 8, MUB = 20, PA = 4 and PB = 5.
A)Consume equal amounts of both goods.
B)Consume more of good A and less of good B.
C)Consume more of good B and less of good A.
D)Lower the price of good B.
E)Raise the price of good A.

Question

Quizplus · Accepted Answer

To maximize utility, Sarah should consume goods such that the marginal utility per dollar spent is equal for both goods. MUA/PA = 8/4 = 2 and MUB/PB = 20/5 = 4. Since MUB/PB is greater, she should consume more of good B and less of good A.

Advise Sarah How to Maximize Her Utility If MUA =