Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that
A) their marginal utilities are the same.
B) their total utilities are the same.
C) their marginal and total utilities are proportionate.
D) the income and substitution effects associated with each are equal.

Question

Quizplus · Accepted Answer

To maximize utility, you should allocate your limited income in such a way that the marginal utility per dollar spent on each product is equal. Since both products have the same price, you should choose the quantities that have equal marginal utilities. This is because the marginal utility per dollar of the last units of A and B consumed will be equal, which means that you will be getting the same additional satisfaction from each product per dollar spent. Therefore, the optimal choice is to purchase A and B in such amounts that their marginal utilities are the same.

Suppose You Have a Limited Money Income and You Are