Suppose Annie allocates her income between calzones and juices and that she has not yet spent her entire income.If the marginal utility of a fourth calzone is 100 units and the marginal utility of a third glass of juice is 50 units,she will _____
A)eat the fourth calzone, as one unit of a calzone has a higher marginal utility than a glass of juice.
B)drink the third glass of juice, because she had only two glasses of juice.
C)consider the total utility derived from the consumption of three calzones and two glasses of juice before deciding what to consume next.
D)consider the relative prices of calzones and juices before deciding what to consume next.
E)consider whether her marginal utilities are diminishing or not before deciding what to consume next.

Question

Quizplus · Accepted Answer

The correct choice is to consider the relative prices of calzones and juices before deciding what to consume next. This is because the decision on what to consume next should be based on the marginal utility per dollar spent on each good, not just the marginal utility of each good in isolation.

Suppose Annie Allocates Her Income Between Calzones and Juices and That