A Consumer Is Making Purchases of Products Alpha and Beta

question 22

Multiple Choice

A consumer is making purchases of products Alpha and Beta such that the marginal utility of product Alpha is 30 and the marginal utility of product Beta is 40. The price of product Alpha is $5, and the price of product Beta is $10. The utility-maximizing rule suggests that, to stay within a given budget constraint, this consumer should

• A)increase consumption of product Beta and decrease consumption of product Alpha.
• B)increase consumption of product Beta and increase consumption of product Alpha.
• C)increase consumption of product Alpha and decrease consumption of product Beta.
• D)make no change in the consumption of Alpha or Beta.

---

Definitions:

PI

Profitability Index (PI) is a ratio that calculates the relationship between the benefits of a project or investment and its costs, helping to determine its attractiveness.

IRR

Internal Rate of Return, a financial metric used to estimate the profitability of potential investments, calculating the interest rate at which the net present value of all cash flows (both positive and negative) from a project or investment equals zero.

Required Rate of Return

The minimum annual percentage return that an investor expects to achieve when investing in a particular asset or project.

NPV

Net Present Value, a financial metric used to assess the profitability of an investment, calculated as the difference between the present value of cash inflows and outflows.