If a Consumer Purchases a Combination of Commodities a and B

question 110

Multiple Choice

If a consumer purchases a combination of commodities a and b such that MUₐ/Pₐ = 50 and MUb/Pb = 30, to maximize utility, the consumer should buy:

• A) less of both a and b.
• B) more of both a and b.
• C) more of a and less of b.
• D) less of a and more of b.

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Definitions:

Internal Rate Of Return

A metric used in capital budgeting to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.

Salvage Value

The projected final worth of an asset at the end of its period of use.

Operating Costs

The expenses related to the day-to-day activities of a business, such as wages and rent.

After-Tax Discount Rate

The discount rate used in financial analysis that reflects the net cost or benefit of investment after accounting for taxes.