Question

Assume MUc and MUd represent the marginal utility that a consumer gets from products C and D, the respective prices of which are Pc and Pd. The consumer will increase his total utility from a specific money outlay by spending more on C and less on D if initially:
A. MUd < MUc
B. (MUc/Pc) < (MUd/Pd)
C. (MUc/Pc) > (MUd/Pd)
D. MUd > MUc

Answer 1

Answer:

Option (C) is correct.

Explanation:

MUc = marginal utility obtained from product C

MUd = marginal utility obtained from product D

Pc = Price of product C

Pd = Price of product D

Therefore, a consumer will maximize his total utility at a point where the marginal utility per dollar from product C and marginal utility per dollar from product D are equal.

It is shown as follows:

$\frac{MUc}{Pc}=\frac{MUd}{Pd}$

The consumer is spending more on product C and less on product D if the marginal utility per dollar of product C is greater than the marginal utility per dollar of product D.