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Homework answers / question archive / A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40
A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5 and the price of product Beta is $10. The utility-maximizing rule suggests that this consumer should: a. increase consumption of product Beta and decrease consumption of product
Answer
c .
Explanation
Computation of Marginal Utility per Dollard Spent for Alpha and Beta:
For Alpha, Marginal Utility per dollar spent = 30/5 = 6
For Beta Marginal Utility per dollar spent = 40/10 = 4
Since Marginal Utility per dollar spent is higher for Alpha, that that of Beta, then more units of Alpha should be consumed and less unit of Beta should be consumed.
The correct option is C "Increase consumption of product Alpha and decrease consumption of product Beta".
