In Order to Maximize Utility, a Consumer Should Allocate Money

question 418

Multiple Choice

In order to maximize utility, a consumer should allocate money income so that

• A) the marginal utility of the last unit of each product consumed is greater than the total utility of each product consumed.
• B) the total utility derived from each product consumed is the same.
• C) the marginal utility obtained from the last dollar spent on each product is the same.
• D) the elasticity of demand on all products purchased is the same.

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Definitions:

Variable Costing

A costing approach where only the variable costs involved in production—such as raw materials, direct labor, and variable manufacturing expenses—are included in the cost of goods sold, leaving out fixed manufacturing overheads.

Contribution Margin

The amount by which the sales of a product exceed its variable costs, representing the portion of sales revenue that contributes to covering fixed costs and generating profit.

Unit Product Cost

The total cost (direct materials, direct labor, and overhead) to produce one unit of a product.

Absorption Costing

An accounting method that includes all manufacturing costs (direct material, direct labor, and both variable and fixed manufacturing overhead) in the cost of a product.