Assume that Michaela's marginal utility from pizza consumption is 10 utils and the price is $2.00 per slice.Further,assume that her marginal utility from scone consumption is 20 utils and the price is $3.00 per scone.Which of the following is true?
A) With her existing budget she should increase her consumption of pizza.
B) With her existing budget she should increase her consumption of scones.
C) She is currently maximizing her utility and should not change the amount of consumption for either good with her current budget.
D) If her budget increases, she should increase her consumption of pizza but not scones.
E) If her budget increases, she should increase her consumption of scones but not pizza.

Question

Quizplus · Accepted Answer

To determine the best choice for Michaela, we need to compare the marginal utility per dollar of pizza and scones:
- Pizza: MU / P = 10 / 2 = 5 utils per dollar
- Scone: MU / P = 20 / 3 = 6.67 utils per dollar
Since the marginal utility per dollar is higher for scones, Michaela should increase her consumption of scones with her existing budget. Option B is correct. Option A is incorrect because increasing pizza consumption would lead to a lower marginal utility per dollar. Option C is incorrect because Michaela can still improve her utility by changing her consumption mix. Options D and E are not applicable as they refer to an increase in budget, which is not given in the question.

Assume That Michaela's Marginal Utility from Pizza Consumption Is 10