Advise Sarah How to Maximize Her Utility If MUA =

question 30

Multiple Choice

Advise Sarah how to maximize her utility if MUA = 8, MUB = 20, PA = 4 and PB = 5.

• A)Consume equal amounts of both goods.
• B)Consume more of good A and less of good B.
• C)Consume more of good B and less of good A.
• D)Lower the price of good B.
• E)Raise the price of good A.

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Definitions:

Equilibrium Price

Equilibrium price is the price at which the quantity of goods supplied is equal to the quantity of goods demanded, achieving a state of market balance.

Purely Competitive

Refers to a market configuration in which numerous companies offer the same products, with no single company having the power to affect the market's pricing.

Short-Run Equilibrium

A state in which market supply and demand balance out at a specific price level, usually considered within a timeframe where some factors are fixed.

Zero Economic Profits

A situation where a firm's total revenues exactly equal its total costs, leading to no net profit or loss after considering both explicit and implicit costs.