During a Study Session for an Economics Exam with Three

question 21

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 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.

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Definitions:

Salvage Value

The estimated value that an asset will realize upon its sale at the end of its useful life.

Accrual Return

The return on investment that is recognized in financial statements before any cash changes hands.

Net Cash Inflows

The amount of cash received by a company from its various operational, investment, and financing activities, minus cash outflows, during a specific period.

Net Present Value

The total present value of a series of future cash flows minus the initial cost of investment.