A Consumer Spends His Limited Income on Three Goods Such

question 1

Multiple Choice

A consumer spends his limited income on three goods such that the MU_X = 4, MU_Y = 4, MU_Z = 4; and P_X = 4, P_Y = 2, P_Z = 1. Which of the following statements is (are) TRUE?
I. Because the marginal utilities of all three goods are equal, the consumer is maximizing utility.
II. The consumer receives the most bang for the buck from good Z.
III. The marginal utility per dollar spent is not equal across all three goods, so the consumer is not maximizing utility.

• A) I
• B) II
• C) III
• D) II and III

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Definitions:

Differential Cost

The difference in cost between two alternative decisions or scenarios, important in the process of making financial decisions.

Book Value

The net value of a company's assets less its liabilities and preferred stock, often used to estimate the company's worth.

Yearly Expense

The total amount of money spent by a business or individual over the course of a year, including operational, administrative, and living expenses.

Old Equipment

Machinery or tools that have been used for a long period and may be outdated or less efficient compared to newer versions.