Bjorn is a student with a monthly budget of $500,which he allocates between transportation services and "all other goods." Suppose the price of transportation is $5 per unit,and the price of "all other goods" is $20 per unit.The marginal utility he currently receives from his consumption of transportation services is 60.What is his marginal utility from the consumption of "all other goods" if he is maximizing his utility?
A)5
B)20
C)25
D)200
E)240

Question

Quizplus · Accepted Answer

To maximize utility, Bjorn should allocate his budget such that the marginal utility per dollar spent is equal for both goods. The marginal utility per dollar for transportation is 60/5 = 12. Therefore, the marginal utility per dollar for "all other goods" should also be 12. Since the price of "all other goods" is $20, the marginal utility should be 12 * 20 = 240.

Bjorn Is a Student with a Monthly Budget of $500,which