A consumer makes purchases of an existing product A such that the marginal utility is 40 and the price is $20. The consumer also tries a new product B and at the current level of consumption it has a marginal utility of 72 and a price of $24. What does
the utility-maximizing rule suggest that this consumer should do?
What will be an ideal response?
Increase consumption of product B and decrease consumption of product A because the marginal utility per dollar spent on A is 2 (40/$20) while the marginal utility per dollar spent on B is
3 (72/$24). More utility per dollar spent is obtained from consuming B, so more should be consumed until the marginal utility per dollar spent on both products is equal.
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If a consumer's budget line between meat and potatoes has a vertical axis intercept at 100 pounds of meat and a horizontal axis intercept at 100 pounds of potatoes
a. demand must be inelastic b. the consumer's budget must equal $100 c. both meat and potatoes must be priced at $1 per pound d. the price of a pound of meat must equal the price of a pound of potatoes e. the opportunity cost of meat in terms of potatoes cannot be determined
When the production possibilities curve is a straight line, the opportunity cost of producing more of one good must be equal to the opportunity costs of producing more of the other good
Indicate whether the statement is true or false