Question

Assume that Alex would like to purchase a combination of product A and product B such that, after he is done spending his limited income, the MUa / Pa = 8 and MUb / Pb = 4. To maximize utility without spending more money, Alex should:

A. Purchase less of product A and more of B
B. purchase more of product A and less of B
C. Purchase more of both product A and B
D. Make no change in purchases for both product A and B

Answer 1

Alex should Purchase less of product A and more of B to maximize utility without spending more money. (option A)

Step-by-step explanation:

To maximize utility without spending more money, Alex should allocate his spending in a way that the marginal utility per dollar is the same for both products. In this scenario, he should adjust his purchases so that MUa/Pa = MUb/Pb. Given that MUa/Pa = 8 and MUb/Pb = 4, he should buy less of the product with the higher ratio and more of the one with the lower ratio. Therefore, he should purchase less of product A and more of product B to achieve equal marginal utility per dollar for both.

To maximize utility without exceeding his limited income, Alex should opt for option A: purchase less of product A and more of product B. This strategy ensures an efficient allocation of resources, aligning with the principle of equalizing the marginal utility per dollar spent on each product.