Asked by Jincy Robin on May 07, 2024
Verified
Assume that a consumer purchases a combination of product A and product B such that the MU ₐ /P ₐ = 8 and MU ᵦ /P ᵦ = 6. To maximize utility without spending more money, the consumer should
A) purchase less of product A and more of product B.
B) purchase more of product A and less of product B.
C) purchase more of both product A and product B.
D) make no change in purchases of products A and B.
Utility Maximization
The economic principle that individuals or firms attempt to allocate their resources in a manner that maximizes their satisfaction or profit.
- Employ the concept of the price to marginal utility ratio in the optimization of utility.
Verified Answer
EJ
EDGAR J RIVERA-RIVERAMay 10, 2024
Final Answer :
B
Explanation :
To maximize utility, the consumer should equalize the marginal utility per dollar spent across all goods. Since MUₐ/Pₐ (8) is greater than MUᵦ/Pᵦ (6), the consumer should purchase more of product A (where they get more utility per dollar spent) and less of product B to equalize the marginal utility per dollar spent across both products.
Learning Objectives
- Employ the concept of the price to marginal utility ratio in the optimization of utility.