If a consumer purchases a combination of commodities a and b such that MUₐ/Pₐ = 100 and MUb/Pb = 80, to maximize utility, the consumer should buy:
A) less of both a and b.
B) more of a and less of b.
C) less of a and more of b.
D) more of both a and b.

Question

Quizplus · Accepted Answer

The consumer should allocate their budget in such a way that the marginal utility per dollar spent on each commodity is equal. Given that MUₐ/Pₐ = 100 and MUb/Pb = 80, the consumer would receive more utility for each dollar spent on commodity a compared to commodity b. Therefore, to maximize utility, the consumer should buy more of commodity a and less of commodity b. This shift in consumption will continue until the marginal utility per dollar spent on both commodities is equal.

If a Consumer Purchases a Combination of Commodities a and B