A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 63 and the marginal utility of product Beta is 40. The price of product Alpha is $9, and the price of product Beta is $5. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should
A)increase consumption of product Alpha and decrease consumption of product Beta.
B)increase consumption of product Beta and increase consumption of product Alpha.
C)increase consumption of product Beta and decrease consumption of product Alpha.
D)make no change in the consumption of Alpha or Beta.

Question

Quizplus · Accepted Answer

The utility-maximizing rule states that consumers should allocate their budget in a way that the marginal utility per dollar spent on each good is equal. Here, the marginal utility per dollar for Alpha is 63/9 = 7, and for Beta is 40/5 = 8. Since the marginal utility per dollar is higher for Beta, the consumer should increase consumption of Beta and decrease consumption of Alpha to maximize utility.

A Consumer Is Making Purchases of Products Alpha and Beta