Suppose that the ratio of marginal utility to price for good A is 10, and the ratio of marginal utility to price for good B is 5. Assume that for her current consumption of goods A and B the consumer is experiencing diminishing marginal utility for each good. In order for this consumer to be at her utility maximizing point, she should
A) consume less A and more B .
B) consume more A and less B .
C) consume more A and more B .
D) do nothing - the consumer is already in equilibrium.

Question

Quizplus · Accepted Answer

The consumer should allocate her budget in such a way that the ratio of marginal utility to price is equal across all goods. Since the ratio of marginal utility to price for good A is twice as large as that for good B, the consumer should consume less of good A and more of good B to equalize the ratios. This will allow her to maximize her overall utility. Therefore, the answer is Choice B.

Suppose That the Ratio of Marginal Utility to Price for Good