At his current consumption level Cameron get 3 times more marginal utility from an additional game of pinball than from an additional game of ping pong.If the price of a ping pong game is $0.50,than he is maximizing utility if the price of a pinball game is
A)$1.00
B)$1.50
C)$2.00
D)$3.00

Question

Quizplus · Accepted Answer

Let X be the marginal utility from an additional game of ping pong.
Then, the marginal utility from an additional game of pinball is 3X.
To maximize utility, Cameron should allocate his spending such that the marginal utility per dollar spent is equal for both games.
For ping pong, the marginal utility per dollar spent is X/$0.50 = 2X.
For pinball, the marginal utility per dollar spent is 3X/price of a pinball game.
Setting 2X = 3X/price of a pinball game and solving for the price of a pinball game, we get price of a pinball game = $1.50.
Therefore, Cameron should spend $0.50 on each game to maximize his utility.

At His Current Consumption Level Cameron Get 3 Times More