Tyrell has $50 to spend on Good A and Good B per week.The price of Good A is $5 and that of Good B is $4.He buys six units of Good A and five units of Good B.The marginal utility of the sixth unit of Good A is 25 units,and the marginal utility of the fifth unit of Good B is 20 units.Which of the following is true?
A)He is maximizing his utility.
B)His last dollar spent on Good A exceeds the last dollar spent on Good B.
C)He is not maximizing his utility and should buy more of Good A.
D)He is not maximizing his utility and should buy more of Good B.
E)He is not maximizing his utility because he is not spending all of his income.

Question

Quizplus · Accepted Answer

To determine whether Tyrell is maximizing his utility, we need to compare the marginal utilities per dollar of each good. The marginal utility per dollar of Good A is 25/5 = 5, while the marginal utility per dollar of Good B is 20/4 = 5. Therefore, Tyrell is getting equal marginal utility per dollar from both goods.

Since Tyrell has allocated his entire budget and is getting equal marginal utility per dollar from both goods, he is maximizing his utility. Therefore, the correct answer is A.

Tyrell Has $50 to Spend on Good a and Good