The relative price of beer to back bacon is 2:1.If Bob's current consumption is at a level where
MUb???/MUb?ck b?c?n is 1:2,then to maximize total utility Bob must
A)consume more beer and less back bacon.
B)not change his current consumption of beer and back bacon.
C)consume less beer and more back bacon.
D)raise the price of beer.
E)consume twice as much beer and half as much back bacon.

Question

Quizplus · Accepted Answer

The ratio of MUb/MUback bacon is 1:2, which means that Bob gains more utility from consuming back bacon than from consuming beer. Therefore, to maximize total utility, Bob should consume less beer and more back bacon. This corresponds to choice C. Choice A would decrease Bob's utility since he gains more utility from consuming back bacon. Choice B would not maximize total utility since Bob can improve his utility by changing his consumption pattern. Choice D is not a valid option since Bob cannot control the price of beer. Choice E would also decrease Bob's utility since he gains less utility from consuming beer and more from consuming back bacon.

The Relative Price of Beer to Back Bacon Is 2:1