During a Study Session for an Economics Exam with Three

question 147

Multiple Choice

During a study session for an economics exam with three other students, Peter Daltry commented on an example of a consumer who had to decide the on number of slices of pizza and cups of Coca-Cola he would consume. Peter explained that "To maximize his utility this consumer must equate the marginal utility per dollar for pizza and Coca-Cola." Was Peter's analysis correct?

• A) Peter described one of the conditions necessary for utility maximization. The consumer also must equate the marginal utility of pizza and the marginal utility of cups of Coca-Cola.
• B) Peter's statement is correct.
• C) Peter's statement is correct, but we must also assume that the consumer is rational.
• D) Peter describes one of the conditions necessary for utility maximization. The second condition is that total spending on both goods must equal the amount available to be spent.

---

Definitions:

Profit-Maximizing Output

The level of production at which a company achieves the highest possible profit margin, given its costs and market demand.

Wage Rate

The amount of money paid to an employee per unit of time, which can be hourly, daily, or annually.

Total Product

The overall amount of products made by a company within a specific timeframe.

Marginal Product

The additional output produced by using one more unit of a variable input, holding other inputs constant.