Question

When a person consumes two goods (A and B), that person's utility is maximized when the budget is allocated such that: A) the marginal utility of A equals the marginal utility of B. B) the ratio of total utility of A to the price of A equals the ratio of the marginal utility of B to the price of A. C) the ratio of the marginal utility of A to the price of A equals the ratio of the marginal utility of B to the price of B. D) the marginal utility of A times the price of A equals the marginal utility of B times the price o

Answer 1

Option "D" is the correct answer to the following question

Step-by-step explanation:

Marginal utility of A / Price of A = Marginal utility of B / Price of B

MU(a) / P(a) = MU(b) / P(b) , for maximum utility.

At the maximal point, the gradient of the separate budget is equal to the slope of the production possibilities. The production possibility slope is the nominal value of A / the nominal value of B.