Eric is maximizing his total utility through his choices of two goods: clothes and food. His marginal utility of clothes is 60 and his marginal utility of food is 12. The price of clothes is $20. What must be the price of food?
A) 12.
B) 6.
C) 4.
D) 1.
E) 0.

Question

Quizplus · Accepted Answer

To maximize utility, the ratio of marginal utility to price should be equal for both goods. Thus, 60/20 = 12/Price of food. Solving gives the price of food as $4.

Eric Is Maximizing His Total Utility Through His Choices of Two