Final answer:
Calculating marginal utility per dollar allows us to make more informed decisions when allocating our limited budgets.
Step-by-step explanation:
When calculating marginal utility per dollar, we are determining the amount of additional satisfaction that can be obtained per unit of money spent. This is a valuable concept because it allows us to make more informed decisions when allocating our limited budget.
By calculating the marginal utility per dollar, we can determine which item will give us the greatest benefit in relation to its cost. In other words, it helps us identify which purchase will provide the most value for our money.
For example, if a T-shirt gives us a marginal utility of 10 utils and costs $5, the marginal utility per dollar is 2 utils per dollar. On the other hand, if a movie gives us a marginal utility of 12 utils and costs $7, the marginal utility per dollar is approximately 1.71 utils per dollar. In this scenario, the movie would provide us with a greater value for our money, so it would be the better choice.