If a Consumer Allocates Income Between Goods X and Y

question 15

Multiple Choice

If a consumer allocates income between goods x and y, consumer equilibrium occurs when

• A)the indifference curve farthest from the origin is reached
• B)MU_x/P_x = MU_y/P_y and the budget is exhausted
• C)marginal utility is maximized
• D)MU_x = MU_y for the last unit consumed of each good
• E)consumer surplus equals 0

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Definitions:

Marginal Product

The increase in output that results from employing one more unit of a particular input, holding all other inputs constant.

Explicit Costs

Direct, out-of-pocket expenses paid by firms for inputs to production, such as wages, rent, and materials, as opposed to implicit costs which are not directly paid out in cash.

Implicit Costs

The opportunity costs that are not directly paid for or incurred during the production of a good or service.

Average Total Cost

The complete expenditure of manufacturing (incorporating steady and fluctuating expenses) divided by the aggregate volume of goods produced.