Asked by gabriela huselton on May 01, 2024
Verified
Betty is maximizing her satisfaction from spending her budget on two items, movie rentals and music downloads. If her marginal utility from the last movie rental is twice that from the last music download, what is the price of a movie rental if the price of a music download is $0.80?
A) $0.40
B) $0.80
C) $1.20
D) $1.60
Marginal Utility
The added gratification or usefulness experienced by a buyer when they consume an additional unit of a good or service.
Utility Maximization
The economic principle that individuals or firms strive to get the greatest satisfaction or benefit from their available resources.
- Acquire knowledge about the theory of utility maximization and its effect on the preferences of consumers.
- Use the marginal utility to price ratio (MU/P) framework to determine the ideal assortment of goods for maximizing utility.
Verified Answer
RH
Rechel HelenaMay 07, 2024
Final Answer :
D
Explanation :
According to the principle of utility maximization, consumers allocate their budget in a way that the last dollar spent on each good provides the same marginal utility. If the marginal utility from the last movie rental is twice that from the last music download, and the price of a music download is $0.80, then the price of a movie rental must be twice that, which is $1.60, to equalize the marginal utility per dollar spent on each.
Learning Objectives
- Acquire knowledge about the theory of utility maximization and its effect on the preferences of consumers.
- Use the marginal utility to price ratio (MU/P) framework to determine the ideal assortment of goods for maximizing utility.