John is currently spending all of his income. For the last unit of Good A consumed John gets 20 utils and for the last unit of Good B consumed he gets 10 utils. The price of Good A is $4. The price of Good B is $1. If John wants to maximize his utility he should
A) continue to purchase the same amount of Good A and Good B.
B) increase the consumption of Good A and decrease the consumption of Good B.
C) decrease the consumption of Good A and increase the consumption of Good B.
D) decrease the consumption of Good A and decrease the consumption of Good B

Question

Quizplus · Accepted Answer

To maximize utility, John should equalize the marginal utility per dollar spent on each good. Currently, Good A provides 5 utils per dollar (20 utils / $4) and Good B provides 10 utils per dollar (10 utils / $1). John should consume more of Good B and less of Good A to equalize the marginal utility per dollar spent.

John Is Currently Spending All of His Income