Asked by Rachel Gallo on Jun 06, 2024
Verified
Suppose you have a limited money income and you are purchasing products A and B,whose prices happen to be the same.To maximize your utility,you should purchase A and B in such amounts that:
A) their marginal utilities are the same.
B) their total utilities are the same.
C) their marginal and total utilities are proportionate.
D) the income and substitution effects associated with each are equal.
Utility-maximizing Combination
This refers to a situation where a consumer selects a combination of goods and services that provides the highest level of satisfaction or utility, given their budget constraint.
Marginal Utilities
The increased contentment or value obtained by a consumer through the consumption of one extra unit of a good or service.
- Identify the combination of goods that optimizes utility given a financial constraint.
Verified Answer
MG
Marisol GarciaJun 11, 2024
Final Answer :
A
Explanation :
To maximize utility, you should allocate your limited income such that the marginal utility per dollar spent is equal across all goods. Since the prices of A and B are the same, purchasing them in equal amounts will ensure that their marginal utilities are also the same. This is the optimal choice for maximizing overall utility.
Learning Objectives
- Identify the combination of goods that optimizes utility given a financial constraint.