Dianna has a choice between lobster and steak for dinner. The lobster dinner costs $30, and gives her utility of 60, while the steak dinner costs $20 and gives her utility of 50. Which should Dianna choose?
a. Dianna would be indifferent between the two choices.
b. The steak
c. The lobster
d. Dianna should have both dinners.
e. The answer cannot be determined without knowing Dianna's utility function.
Robert spends all his income on dancing shoes and CDs. The price of shoes is three times the price of CDs. What should Roger do to maximize his utility?
a. Robert should buy shoes and CDs until the total utility from shoes is three times the marginal utility from CDs.
b. Robert should buy shoes and CDs until the marginal utility from shoes is three times the marginal utility from CDs.
c. Robert should buy three times as many CDs as shoes.
d. Robert should buy equal amounts of shoes and CDs.
e. Robert should buy three times as many shoes as CDs.
You are currently trying to maximize your utility by buying 10 candy bars and 20 glasses of milk. The marginal utility of the 10th candy bar is 150, and the marginal utility of the 20th glass of milk is 200. You are spending all your income. The price of milk is $1 per glass, and the price of candy bars is $1.50 per bar. Are you maximizing your utility?
a. No, the marginal utility of milk is greater than the marginal utility of candy, so you should consume more milk and less candy.
b. No, the marginal utility per dollar spent on the last unit of milk is greater than the marginal utility per dollar spent on the last unit of candy, so you should consume more milk and less candy.
c. No, the price of milk is less than the price of candy, so you should consume more milk and less candy.
d. Yes, and thus you should not change your choice.
e. No, the marginal utility per dollar spent on the last unit of candy is greater than the marginal utility per dollar spent on the last unit of milk, so you should consume more candy and less milk.