Question

Suppose Oliver's marginal utilities from an ice cream cone and a box of chocolate cookies are valued at $6 and $10, respectively. The marginal costs of an ice cream cone and a box of chocolate cookies are $5 and $10, respectively. According to marginal analysis, Oliver should:

Answer 1

Purchase the Ice Cream Cone for a net addition to marginal utility of $1

Step-by-step explanation:

Marginal Utility is explained as the level of satisfaction that is added when a consumer consumes an additional unit of a product or patronizes a service. It determines the number of items an individual is willing to purchase based on his additional satisfaction from every extra item.

If the additional item leads to an increase in total utility then it is called positive marginal utility and when it decreases total utility then it is called negative marginal utility.

Oliver based on marginal analysis should purchase the Ice Cream Cone for the difference in value of $5 to 6$, that is the net additional marginal utility of $1, but should not purchase the box of chocolate because the marginal utility does not change it remains $10