The Price of a Hamburger Is $1 and the Price

question 305

Multiple Choice

The price of a hamburger is $1 and the price of a movie is $6 and the consumer has $14. A consumer has purchased 2 hamburgers and 2 movies, receiving 20 units of utility for the second hamburger and 100 units of utility for the second movie. The set of goods

• A) is an optimum since the entire income is spent and the marginal utility per dollar spent is the same for the last unit of each good.
• B) is an optimum since the entire income is spent and total utility is maximized.
• C) is not an optimum because the marginal utility per dollar spent is greater for hamburgers than for movies and the consumer is not spending all of his income.
• D) is not an optimum because the marginal utility for each good is not equal.

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Definitions:

Depreciation Expense

An accounting method that allocates the cost of a tangible asset over its useful life, representing the wear and tear, deterioration, or obsolescence of the asset.

Interest Expense

The cost incurred by an entity for borrowed funds over a period of time, typically reported on the income statement.

Times Interest Earned

A financial ratio that measures a company's ability to meet its debt obligations based on its current income.