The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3

-In order to maximize utility, consumers _____.
A)continue to make purchases until the marginal utility of each good is zero
B)compare the marginal utilities of the last dollar spent on each good
C)equate the total utilities of each good consumed
D)continue to purchase a good until total utility is equal to zero
E)will continue purchasing till diminishing marginal utility is not achieved

Question

The below table shows the average utility (in utils) obtained from the consumption of goods A and B.Table 7.3
 
-In order to maximize utility, consumers _____.
A)continue to make purchases until the marginal utility of each good is zero 
B)compare the marginal utilities of the last dollar spent on each good 
C)equate the total utilities of each good consumed 
D)continue to purchase a good until total utility is equal to zero 
E)will continue purchasing till diminishing marginal utility is not achieved

Quizplus · Accepted Answer

In order to maximize utility, consumers need to compare the marginal utilities of the last dollar spent on each good. This is because the marginal utility per dollar spent gives an indication of which good provides more utility for the money spent. As long as the marginal utility per dollar spent is greater for one good compared to the other, the consumer should continue to allocate more spending towards this good until the marginal utility per dollar spent becomes equal for both goods. This point is where the consumer has achieved utility maximization.

The Below Table Shows the Average Utility (In Utils) Obtained