The Price of a Piece of Pizza Is $1, and the Price

question 256

Multiple Choice

The price of a piece of pizza is $1, and the price of a movie is $6. The consumer has purchased 2 pieces of pizza and 2 movies, and her marginal utility from the second piece of pizza is 20 and from the second movie is 120. The consumer has an income of $21. This combination of goods

• A) maximizes utility and is an optimum because the marginal utility of the last dollar spent on each good is the same.
• B) maximizes utility because the marginal utility of the last dollar spent on each good is the same, but it is not an equilibrium because marginal utility is not zero.
• C) is not an optimum because the consumer has not spent all of her money.
• D) is not an optimum because the marginal utility of the last dollar spent on each good is not the same.

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Definitions:

Differential Revenue

The amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.

Differential Cost

The amount of increase or decrease in cost expected from a particular course of action compared with an alternative.

Unit Cost

The total expense incurred to produce, store, and sell one unit of a product, including direct materials, direct labor, and overhead costs.

Modifying Style

The process of altering or customizing a particular format or design to meet specific requirements.