Bobby consumes only chocolate ice cream and vanilla ice cream. He is spending all of his income. His marginal utility of chocolate is 200 and his marginal utility of vanilla is 200, and the price of chocolate is $1.00 per scoop and the price of vanilla is $2.00 per scoop. To maximize his utility, Bobby should
A) buy more chocolate ice cream and less vanilla ice cream.
B) buy more vanilla ice cream and less chocolate ice cream.
C) not change his purchases between chocolate ice cream and vanilla ice cream.
D) buy no vanilla ice cream.

Question

Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for both goods. Currently, the marginal utility per dollar for chocolate is 200/1 = 200, and for vanilla, it is 200/2 = 100. Bobby should buy more chocolate and less vanilla to equalize the marginal utility per dollar.

Bobby Consumes Only Chocolate Ice Cream and Vanilla Ice Cream