A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should
A) increase consumption of product Beta and decrease consumption of product Alpha.
B) increase consumption of product Beta and increase consumption of product Alpha.
C) increase consumption of product Alpha and decrease consumption of product Beta.
D) makeno change in the consumption of Alpha or Beta.

Question

Quizplus · Accepted Answer

The utility-maximizing rule suggests that a consumer should allocate their budget in such a way that the marginal utility per dollar spent is equal across all goods consumed. This means that in this case, the consumer should aim to have a marginal utility per dollar of 6 for both product Alpha and Beta, since the price of Alpha is $5 and the price of Beta is $10. 
Currently, the marginal utility per dollar spent on Beta is higher (4) than that of Alpha (6), which indicates that the consumer should decrease consumption of Beta and increase consumption of Alpha to reach an equilibrium where the marginal utility per dollar spent is equal across both products. Therefore, the consumer should choose to increase consumption of product Alpha and decrease consumption of product Beta. Choice C is the only option that reflects this decision.

A Consumer Is Making Purchases of Products Alpha and Beta