Assume that the marginal utility from good A is 10 units and that the price of good A is $5 per unit. The marginal utility from good B is 15 units and its unit price is $7. In this situation, a utility-maximizing consumer should

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Quizplus · Accepted Answer

To maximize utility, a consumer should allocate spending towards goods where the marginal utility per dollar is highest. In this case, the marginal utility per dollar of good B is higher than that of good A.

For good A, the marginal utility per dollar is 10/5 = 2.
For good B, the marginal utility per dollar is 15/7 ≈ 2.14.

Therefore, the consumer should consume more of good B to achieve the highest level of utility possible, given their budget constraint.

Assume That the Marginal Utility from Good a Is 10