Shelley is maximizing utility in her consumption of mansions and Porsches. If the marginal utility of her last purchased mansion is twice the marginal utility of her last purchased Porsche, then we know
A)Shelley buys twice as many mansions as Porsches.
B)Shelley buys twice as many Porsches as mansions.
C)Shelley buys more Porsches than mansions, but we do not know how many more.
D)the price of a mansion is twice the price of a Porsche.
E)the price of a Porsche is twice the price of a mansion.

Question

Quizplus · Accepted Answer

The condition for utility maximization is that the ratio of the marginal utility to price should be equal for all goods. If the marginal utility of a mansion is twice that of a Porsche, then the price of a mansion must be twice the price of a Porsche to maintain this equality.

Shelley Is Maximizing Utility in Her Consumption of Mansions and Porsches