1. A consumer has a fixed amount of income to spend, and buys only goods A and B. The price of A is $10 and the price of B is $2. She is currently spending all of her income per week and is buying some amount of A and some amount of B, such that the marginal utility of good A is 200 and the marginal utility of good B is 50. Which of the following answers is most correct?
She is currently maximizing her utility, and should continue to purchase the current combination of A and B.
She could increase her utility if she buys more A and cuts back on B.
She could increase her utility if she buys more B and cuts back on A.
She should buy more A without cutting back on B.
1. A consumer has a fixed amount of income to spend, and buys only goods A and B. The price of A is $10 and the price of B is $2. She is currently spending all of her income per week and is buying some amount of A and some amount of B, such that the marginal utility of good A is 200 and the marginal utility of good B is 50. Which of the following answers is most correct?
| She is currently maximizing her utility, and should continue to purchase the current combination of A and B. |
| She could increase her utility if she buys more A and cuts back on B. |
| She could increase her utility if she buys more B and cuts back on A. |
| She should buy more A without cutting back on B. |
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3. Amy is shopping at a dollar store. She is currently buying 5 bracelets that cost $1 each and 4 sodas that cost $1 each. The table below indicates the marginal utility she obtains when she purchases this combination.
| Quantity | Price per Unit | MU per unit | |
| Bracelets | 5 | $1 | 30 |
| Sodas | 4 | $1 | 40 |
A consumer maximizes utility when the last dollar spent on any good generates the same satisfaction as the last dollar spent on every other good. Is this consumer maximizing her utility?
If not, should she consume more bracelets or more sodas? Explain.
Answer the following assuming that one more bracelet is purchased and one less soda is consumed:
Recall the law of diminishing marginal utility. What happens to the Marginal Utility of bracelets and the Marginal Utility of soda?
What happens to the Total Utility received?
What happens to the total dollars spent?
