Question

1. To maximize utility purchasing a number of different products, a consumer should purchase the products...

1. To maximize utility purchasing a number of different products, a consumer should purchase the products in amounts such that all product's Marginal utility divided by thier prices are equal.

A. True

B. False

C. True if the prices of the products are equal

D. None of the above

2. A consumer can buy a MP3 player for $75 or 4 CD's for $40 or concert tickets for $25. The MP3 player is worth 150 MU to the consumer, the 4 CD's worth 120 MU and the concert tickets worth 100 MU. The consumer should choose to buy which product to maximize satisfaction?

A. MP3 player

B. 4 CD's

C. concert tickets

D. none of these

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Answer #1

A. True. This is because utility should be equalized per dollar spent on each good. If this condition is false that reallocating spending from those goods that give less marginal utility to those that give more marginal utility will increase total utility.

2. Using the information in question 1 above, find MU per dollar spend: MU/Price

MP3: 150/75 = 2/$, 4CDs: 120/40 = 3/$, Concert tickets: 100/25:4/$

C. Concert tickets. These give more muitlities per dollar spent.

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