Ricardo likes to rent DVDs and attend concerts. The DVDs cost $4 and the concerts cost $40. Ricardo's marginal utility from the last DVD is 20 units. Ricardo is maximizing his utility. What is his marginal utility from the last concert he attended?
What will be an ideal response?
The marginal utility from his last concert is 200 units. In order for Ricardo to maximize his utility, the marginal utility per dollar must be equal for all goods. The marginal utility per dollar from the last DVD is (20 units) ÷ ($4 ) = 5. So the marginal utility per dollar from the last concert also must equal 5, which, given its price of $40, means that concert has a marginal utility of 200, because (200 units) ÷ ($40 ) = 5.
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