Suppose both goods L and M have a price of $6.To maximize your utility from spending a given amount of income on the two goods you should:
A) consume more each as long as they provide more than 6 units of marginal utility each.
B) consume them so that consumption of each good provides the same total utility.
C) consume them so that consumption of the last unit each good provides the same marginal utility.
D) all of the above.

Question

Quizplus · Accepted Answer

According to the principle of diminishing marginal utility, the marginal utility of a good decreases as consumption increases. Therefore, to maximize overall utility, we should allocate our spending so that the marginal utility per dollar spent is equal for both goods. This occurs when the last unit of both goods provides the same level of marginal utility. So, we should consume both goods such that the consumption of the last unit of each good provides the same marginal utility. This is choice C.

Suppose Both Goods L and M Have a Price of $6.To