Assume that a consumer pruchases A, B, and C in quantites suchthat the last doll

Question

Assume that a consumer pruchases A, B, and C in quantites suchthat the last dollar spent on each yields the same marginal utilityand the consumer's income is totally spent. We can concludethat: A.total utility is being minimized. B.production costs are being minimized. C.marginal utility exceeds total utility. D.total utility is being maximized. Assume that a consumer pruchases A, B, and C in quantites suchthat the last dollar spent on each yields the same marginal utilityand the consumer's income is totally spent. We can concludethat: A.total utility is being minimized. B.production costs are being minimized. C.marginal utility exceeds total utility. D.total utility is being maximized.

Explanation / Answer

D. Total Utility is maximized. The reason we know this is if itwere otherwise, i.e. if A had a higher marginal utility than B whenmoney ran out, the person could be better off by spending less on Band more on A. When the marginal utility divided by price for eachof them is equivalent, that means no gains from substituting oneproduct for another can be made, which means utility ismaximized.

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