Asked by Brigid Ripley on May 30, 2024
Verified
Assume that a consumer purchases a combination of products Y and Z and that the MU y/ Pᵧ = 25 and MU z/ Pz = 20. To maximize utility, without spending more money, the consumer should
A) purchase less of Y and more of Z.
B) purchase more of Y and less of Z.
C) purchase more of both Y and Z.
D) make no change in the quantities Y and Z.
Utility Maximization
The process by which consumers allocate their income in a way that maximizes their overall satisfaction or utility.
- Work out the best selection of products to attain maximal utility with an allocated budget.
- Apply the marginal utility to price ratio (MU/P) principle to select the combination of goods that ensures maximum utility.
Verified Answer
TR
Tristan RaborgJun 06, 2024
Final Answer :
B
Explanation :
To maximize utility without spending more money, the consumer should adjust their consumption to equalize the marginal utility per dollar spent on each good. Since MUy/Py is higher than MUz/Pz, the consumer should purchase more of Y and less of Z to equalize the marginal utility per dollar spent across both goods.
Learning Objectives
- Work out the best selection of products to attain maximal utility with an allocated budget.
- Apply the marginal utility to price ratio (MU/P) principle to select the combination of goods that ensures maximum utility.