Ellen is spending her entire income on goods X and Y. Her marginal utility from the last units of X and Y that she consumes is 25. Ellen's utility is only maximized if

A) the prices of X and Y are the same.
B) the price of good X is twice that of good Y.
C) the price of good Y is twice that of good X.
D) We cannot determine whether Ellen is maximizing her utility.

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Monica Fernandez · Accepted Answer

Final Answer : A, Explanation :  The marginal utility of a good is the additional utility that a consumer receives from consuming one more unit of that good. If the marginal utility of the last unit of a good is greater than the price of that good, then the consumer can increase their utility by consuming more of that good. In this case, the marginal utility of the last unit of both goods is the same, so Ellen can maximize her utility by consuming equal amounts of both goods.

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