📚 Learning Guide
Marginal Utility and Budgeting
medium

Maria has a budget of $30 and is considering purchasing two goods: water and good X. Water costs $3 per unit, and good X costs $6 per unit. If Maria derives a marginal utility of 9 from the last unit of water and 12 from the last unit of good X, how should she allocate her budget to maximize her total utility?

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Learning Path

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Choose the Best Answer

A

Buy 10 units of water and no good X

B

Buy 5 units of water and 2 units of good X

C

Buy 3 units of water and 3 units of good X

D

Buy only good X to maximize satisfaction

Understanding the Answer

Let's break down why this is correct

Answer

To maximize her total utility, Maria should compare the marginal utility she gets from each dollar spent on water and good X. For water, the marginal utility per dollar is 9 divided by 3, which equals 3. For good X, the marginal utility per dollar is 12 divided by 6, which equals 2. Since the marginal utility per dollar for water is higher, Maria should spend more on water. Therefore, she should buy as much water as her budget allows before purchasing good X, ensuring she gets the most satisfaction from her money.

Detailed Explanation

Maria should buy 5 units of water and 2 units of good X. Other options are incorrect because Buying only water may seem good, but it doesn't use her budget wisely; This choice spreads her budget too thin.

Key Concepts

Marginal Utility
Budgeting
Resource Allocation
Topic

Marginal Utility and Budgeting

Difficulty

medium level question

Cognitive Level

understand

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