Question

2. At a consumer optimum, for all goods purchased, marginal utility per dollar spent is equalized. A high school student is deciding between attending Petersburg University and Fairfax University. The student cannot attend both universities, but the reputation of Petersburg is slightly higher, as is the tuition. Use the rule of consumer optimum to explain how the student will go about deciding which university to attend.

Answer 1

The high school student should analyze the point at which the marginal cost equals the marginal benefit.

In other words, he or she should see if the increased costs of attending Petesburg University are more or less equal to the increased benefit that is gained from graduating from a more prestigious university.

The student should also analyze the possible opportunity cost in the future. Attending amore renowned college can result in better job prospects than doing otherwise. Higher salaries in the future could be given up if he or she chooses the cheaper option.