Asked by Thembelihle Khuzwayo on May 18, 2024
Verified
Suppose that Ms. Thomson is currently exhausting her money income by purchasing 10 units of A and 8 units of B at prices of $2 and $4, respectively. The marginal utility of the last units of A and B are 16 and 24, respectively. These data suggest that Ms. Thomson
A) has preferences that are at odds with the principle of diminishing marginal utility.
B) considers A and B to be complementary goods.
C) should buy less A and more B.
D) should buy less B and more A.
Marginal Utility
The heightened benefit received from using one more unit of a good or service.
- Pinpoint the conditions conducive to the optimal utility for consumers.
- Compute the optimum selection of products to achieve maximum utility within utility maximization scenarios.
Verified Answer
BL
Betty LandersMay 23, 2024
Final Answer :
D
Explanation :
To maximize utility, the consumer should allocate spending so that the marginal utility per dollar spent is equal across all goods. Here, the marginal utility per dollar spent on A is 16/2 = 8, and for B, it's 24/4 = 6. Since the marginal utility per dollar is higher for A, Ms. Thomson should buy less B and more A to equalize the marginal utility per dollar spent across both goods.
Learning Objectives
- Pinpoint the conditions conducive to the optimal utility for consumers.
- Compute the optimum selection of products to achieve maximum utility within utility maximization scenarios.