When deciding between purchasing two goods, an individual should purchase the good with the highest:Multiple choice question.utils.marginal utility.marginal utility per dollar.total utility.
Question
When deciding between purchasing two goods, an individual should purchase the good with the highest:Multiple choice question.utils.marginal utility.marginal utility per dollar.total utility.
Solution
When deciding between purchasing two goods, an individual should purchase the good with the highest marginal utility per dollar. This is because it gives the individual the most satisfaction (utility) for each dollar spent, making it the most cost-effective choice.
Here are the steps to make this decision:
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Calculate the marginal utility of each good: This is the additional satisfaction you get from consuming one more unit of the good.
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Calculate the price of each good: This is the cost of purchasing one unit of the good.
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Calculate the marginal utility per dollar for each good: This is the marginal utility divided by the price. It tells you how much satisfaction you get for each dollar you spend on the good.
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Compare the marginal utility per dollar of the two goods: The good with the higher marginal utility per dollar is the one that gives you the most satisfaction for your money, so this is the one you should choose to purchase.
Similar Questions
Suppose you have the following information on John’s preferences. Hamburgers, Pizza, and UtilityHamburgers Marginal Utility of Hamburgers Marginal Utility of Hamburgers per Dollar PH=$5PH=$5Slices of Pizza Marginal Utility of Slices of Pizza Marginal Utility of a Slice of Pizza per Dollar PP=$2PP=$21 20 4 1 14 7 Assuming John has the income to purchase either good, which statement is true?Multiple choice question.John should first purchase a slice of pizza because the marginal utility per dollar is higher than hamburgers.Not enough information to determine which good should be purchased.John should first purchase a hamburger because the marginal utility is greater than a slice of pizza.John should first purchase a slice of pizza because the price is lower than hamburgers.
A consumer with a limited income will maximize utility when each good is purchased in amounts such that theMultiple Choicetotal utility is the same for each good in a bundle.marginal utility of each good in a bundle is maximized.marginal utility per dollar spent on each of the final choices in a bundle is equal.marginal utility per dollar spent on each of the final choices in a bundle is maximized for each good.
For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility of good B is 60 and its price is $12. The consumer has allocated his entire budget. Is this consumer maximizing his total utility? Explain your answer
Below is the utility preferences for an individual: Movies Marginal Utility of Movies Marginal Utility of Movies per Dollar (PM=$10)PM=$10Books Marginal Utility of Books Marginal Utility of Books per Dollar (PB=$5)PB=$51 100 10 1 45 92 70 7 2 40 83 40 4 3 30 64 10 1 4 15 3 What is the utility-maximizing consumption bundle if the individual has $25 to spend?Multiple choice question.1 movie and 3 books5 books2 movies and 3 books2 movies and 1 book
Which of the following statements is correct?Multiple ChoiceTotal utility is the change in marginal utility as quantity consumed increases.Total utility is the product of multiplying price times marginal utility.Total utility is the sum of marginal utilities.Marginal utility is the sum of total utility.
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