A consumer has spent all of his income on pizza and movies. The price of a piece of pizza is $1 and the price of a movie is $6. The marginal utility of the last piece of pizza is 5 and the marginal utility of the last movie is 24. The consumer has

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Quizplus · Accepted Answer

To maximize utility, the consumer should adjust their consumption so that the marginal utility per dollar spent is equal across all goods. Here, the marginal utility per dollar spent on pizza is 5 (since the marginal utility of the last piece of pizza is 5 and its price is $1), and the marginal utility per dollar spent on movies is 4 (since the marginal utility of the last movie is 24 and its price is $6). Since the marginal utility per dollar is higher for pizza, the consumer has not maximized utility and should buy more pizza and less movies.

A Consumer Has Spent All of His Income on Pizza