Question

24. Suppose that for Jason the marginal utility of $50-per-serving caviar is 100 and the marginal utility of $1-per- serving popcorn is 10. For his snack, Jason should buy the caviar if he has the $50; otherwise the popcorn b. the caviar if he has the $50; otherwise nothing a. the popcorn, whether he has the $50 or not d. one serving each of the caviar and popcorn, if he has $51 five servings of popcorn for each serving of caviar с. e. 25. Suppose you have spent your entire budget and, for all the goods you purchase, the marginal utilities per dollar spent are identical. Which of the following is true? You are being irrational. b. You can increase your utility by reallocating your income. You will reduce your utility if you allocate income in any other way. d. You are minimizing your marginal utility. You can avoid diminishing marginal utility. a. с. e. 26. If MU/P, > MU, /Py, the consumer can increase utility by buying more of good x, which will cause the MU to rise. True a. b. False 27. If MUJP> MU,/Py, the consumer can increase utility by buying less of good y, which means the MU, will rise.

Answer 1

24.          Caviar MU = 100 and P = $50, then MU/P = 100/50 = 2

                Popcorn MU = 10 and P = $1, then MU/P = 10/1 = 10

The ratios are not equal, Jason should buy popcorn whether he has $50 or not.

25.          If the entire budget is spent and MU per dollar are equal than You are maximizing your marginal utility.

26.          More units of X would lead to the decline in marginal utility of X. Thus the statement is FALSE.

27.          If MUx/Px>MUy/Py, then the consumer can increase utility by buying less of Y and more of X. The statement given is TRUE.