Bob consumes food and housing. Suppose his marginal utility from an additional u
ID: 1103303 • Letter: B
Question
Bob consumes food and housing. Suppose his marginal utility from an additional unit of food is 5050 and his marginal utility from an additional unit of housing is 200200. Furthermore, suppose the price of a unit of food is $1.001.00 and the price of a unit of housing is$5.005.00. Can Bob increase his utility without changing his total expenditures on food and housing? Holding expenditures constant,
A.Bob can increase utility by spending more on food and less on housing.
B.Bob can increase utility by spending more on food and more on housing.
C. Bob can increase utility by spending more on food and the same amount on housing.
D. Bob can increase utility by spending less on food and more on housing.
E.Bob cannot increase his utility.
Explanation / Answer
MU/P for food = 50/1 = 50 utils/$
MU/P for housing = 200/5 = 40 utils/$
Yes,Bob can increase his utility without changing his total expenditures on food and housing by spending more on food and less on housing. (Savings by spending less on housing (relatively lower MU/P) are used for consuming more food which has a higher MU/P)
Option A is correct