Asksia AI LOGO

Sia

Question
Macroeconomics
Posted 10 months ago

Ecrin has $30\$ 30 to spend on robotrons and flowbots, which each cost $2\$ 2. Currently, her marginal utility from one more flowbot would be 40 and her marginal utility from one more robotron would be 30 .

Which of the following statements best describes how she should allocate her budget?

Choose 1 answer:
(A) She should buy more robotrons

B It doesn't matter which good she buys because they cost the same.
(C) She should buy more flowbots.
(D) The marginal utility from flowbots is higher so she should always buy more flowbots.
(E) Because the prices are equivalent, she should buy the same number of flowbots and robotrons.
Sign in to unlock the answer
Answer from Sia
Posted 10 months ago
Solution
a
Understanding Marginal Utility per Dollar: To maximize utility, Ecrin should allocate her budget in a way that equalizes the marginal utility per dollar spent on robotrons and flowbots
b
Calculation of Marginal Utility per Dollar: The marginal utility per dollar for flowbots is 402=20\frac{40}{2} = 20 and for robotrons is 302=15\frac{30}{2} = 15
c
Decision Rule: Ecrin should continue to purchase the good that gives her the higher marginal utility per dollar until the marginal utility per dollar is equal for both goods
Answer
Ecrin should buy more flowbots until the marginal utility per dollar is equal for both goods.
Key Concept
Marginal Utility per Dollar
Explanation
Ecrin should allocate her budget to equalize the marginal utility per dollar for both goods to maximize her total utility.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Unlock Smarter Learning with AskSia Super!

Join Super, our all-in-one AI solution that can greatly improve your learning efficiency.

30% higher accuracy than GPT-4o
Entire learning journey support
The most student-friendly features
Study Other Question