Asked by Jaynese Jones on May 01, 2024
Verified
Assume that product Alpha and product Beta are both priced at $1 per unit and that Ellie has $20 to spend on Alpha and Beta. She buys 8 units of Alpha and 12 units of Beta. The marginal utility of Alpha is 40 and the marginal utility of Beta is 20. This indicates that
A) Ellie should make no change in consumption.
B) given another dollar, Ellie should buy an additional unit of Beta.
C) in order to maximize utility, Ellie should buy more of Beta and less of Alpha.
D) in order to maximize utility, Ellie should buy more of Alpha and less of Beta.
Marginal Utility
The augmented joy or usefulness a shopper obtains by buying an extra unit of a commodity or service.
Utility Maximization
The economic principle that individuals seek to allocate their resources in a way that maximizes their satisfaction or utility.
Consumption
The spending on goods and services by households or individuals.
- Utilize the concept that involves the ratio of marginal utility and price for improving utility.
Verified Answer
ZK
Zybrea KnightMay 05, 2024
Final Answer :
D
Explanation :
To maximize utility, consumers should allocate their spending so that the marginal utility per dollar spent is equal across all goods. Here, the marginal utility per dollar spent on Alpha is 40 ($1 per unit), and for Beta, it is 20 ($1 per unit). Since the marginal utility per dollar spent on Alpha is higher, Ellie should buy more of Alpha and less of Beta to maximize her utility.
Learning Objectives
- Utilize the concept that involves the ratio of marginal utility and price for improving utility.
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