Question

Melika spends all her income on two goods, magazines and carry-out lunches. The price of a magazine is $5, and the price of a carry-out lunch is $7. At the current consumption bundle, the marginal utility of magazines is 10, and the marginal utility of carry-out lunches is 21. To maximize utility given her income, Melika should: Group of answer choices increase her consumption of carry-out lunches and decrease her consumption of magazines. increase her consumption of magazines and decrease her consumption of carry-out lunches. consume equal amounts of magazines and carry-out lunches. continue to consume the current bundle.

Answer 1

Answer:  increase her consumption of carry-out lunches and decrease her consumption of magazines.

Explanation:

Melika should buy more of the good that gives her more utility per dollar spent.

Magazine utitlity per dollar spent:

= Marginal utility / Price

= 10 / 5

= 5 per dollar

Carry-out lunches:

= 21 / 3

= 7 per dollar

Carry-out lunches give her a greater utility per dollar so Melika should consume more of that than magazines.