If John consumes only two goods,A and B,and he is maximizing his utility subject to his budget constraint,
A)MUA/MUB equals 1.
B)MUA/MUB equals the ratio of the price of A to the price of B.
C)MUA/MUB is at a maximum.
D)MUA/MUB equals the ratio of the total utility of A to the total utility of B.
E)MUA/MUB equals zero.

Question

Quizplus · Accepted Answer

The optimal consumption combination for John will occur where the ratio of the marginal utility of A to the marginal utility of B equals the ratio of the price of A to the price of B. This is known as the marginal rate of substitution (MRS). Therefore, MUA/MUB equals the ratio of the price of A to the price of B.

If John Consumes Only Two Goods,A and B,and He Is