Question

For a consumer to maximize utility?
A Price equals marginal cost
B Marginal Utility equals marginal benefit
C Marginal benefit equals total utility
D Price equals marginal benefit

Answer 1

The correct answer is option D. For a consumer to maximize utility price should be equal to marginal benefit.

Explanation:

Utility is the total satisfaction that is derived by a consumer from consuming different units of a commodity.

Marginal benefit is the maximum amount that a consumer is willing to pay for acquiring an additional unit of a good. It is also known as marginal utility i.e. the satisfaction that a consumer will receive from the consumption of additional unit of the good.

Price is the amount that a consumer actually spends to acquire additional unit of goods. So, when price i.e. amount spent on getting additional one unit of a good is equal to marginal benefit i.e. the satisfaction from consuming that additional one unit of good, then utility of consumer is maximized.

So, utility will be maximized i.e. consumer will get maximum satisfaction when the price of the good is equal to marginal benefit of that good. Thus, option D is correct.