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 $2. The price of Good B is $5. 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 10 utils per dollar (20 utils / $2), and Good B provides 2 utils per dollar (10 utils / $5). John should increase consumption of Good A and decrease consumption of Good B to maximize utility.

John Is Currently Spending All of His Income