Sharon purchases two products with a given fixed budget, orange juice and soda. Her marginal utility from orange juice is 60, and her marginal utility from soda is 30. The price of a bottle of orange juice is $2.00, and the price of soda is $1.00. These data suggest that
A) Sharon is maximizing her utility from the given fixed budget.
B) Sharon should buy more orange juice and less soda.
C) Sharon should buy more soda and less orange juice.
D) Sharon should buy less orange juice and soda.

Question

Quizplus · Accepted Answer

According to the concept of marginal utility and the prices of the two products, Sharon is maximizing her utility by consuming equal amounts of both products. This is because the marginal utility per dollar spent on orange juice is 30 (60/2) and for soda is 30 (30/1), which are equal. Hence, any increase or decrease in the consumption of either product would decrease her overall utility. Therefore, she should continue consuming equal amounts of orange juice and soda to maximize her utility from the given fixed budget.

Sharon Purchases Two Products with a Given Fixed Budget, Orange