Figure 21-11
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase
A) 9 marshmallows and 6 chocolate chips.
B) 10 marshmallows and 10 chocolate chips.
C) 5 marshmallows and 5 chocolate chips.
D) 3 marshmallows and 9 chocolate chips.

Question

Figure 21-11 
-Refer to Figure 21-11.Assume that the consumer depicted in the figure has an income of $40.If the price of chocolate chips is $4 and the price of marshmallows is $4,the optimizing consumer would choose to purchase
A) 9 marshmallows and 6 chocolate chips. 
B) 10 marshmallows and 10 chocolate chips. 
C) 5 marshmallows and 5 chocolate chips. 
D) 3 marshmallows and 9 chocolate chips.

Quizplus · Accepted Answer

To optimize her utility, the consumer would choose the combination of chocolate chips and marshmallows such that the marginal utility per dollar spent on both the goods is the same. In other words, the consumer would allocate her budget such that the ratio of the marginal utility of chocolate chips to their price is equal to the ratio of the marginal utility of marshmallows to their price. From the figure, we can see that at the point where the budget line is tangent to the indifference curve passing through point A, the marginal utility per dollar spent on both goods is the same. This occurs at point B, where the consumer purchases 5 marshmallows and 5 chocolate chips. This combination of goods maximizes the consumer's utility given her income and the prices of the goods.

Figure 21-11 -Refer to Figure 21-11.Assume That the Consumer Depicted in the Depicted