Mr. Samuelson's current rates of purchase are such that the marginal utility of slacks is 18 and the marginal utility of ties for him is 5. If slacks and ties are priced at $12 and $2, respectively, it can be concluded that Mr. Samuelson
A) is spending too much on slacks and not enough on ties.
B) is spending too much on ties and not enough on slacks.
C) is spending his income in such a way as to maximize his satisfaction.
D) should buy six times as many ties as he does slacks.

Question

Quizplus · Accepted Answer

The marginal utility per dollar spent on slacks is 18/12 = 1.5, and for ties, it is 5/2 = 2.5. Since the marginal utility per dollar is higher for ties, Mr. Samuelson should spend more on ties and less on slacks to maximize his satisfaction.

Mr Samuelson's Current Rates of Purchase Are Such That the Marginal