Marv Pilson has $50 worth of groceries in a shopping cart at his local Shop 'n Save. Assume that the marginal utility per dollar of the liter bottles of soft drink in Marv's cart equals 50. The marginal utility per dollar of the boxes of cereal in Marv's
cart equals 20. Marv has only $50 to spend, but has not yet paid for his groceries. How can Marv increase his total utility without spending more than $50?
A) Marv should substitute his favorite soft drink or the cereal in his cart for generic brands that have lower prices.
B) Marv should buy more boxes of cereal and fewer bottles of soft drink.
C) Marv should buy fewer boxes of cereal and more bottles of soft drink.
D) Marv should buy fewer boxes of cereal and fewer bottles of soft drink. He can then spend more on other items.
Answer: C
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a. price discrimination. b. price segregation. c. synergy pricing. d. average cost pricing.
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The law of diminishing marginal returns
A. results in average variable cost (AVC), average total cost (ATC), and marginal cost (MC) curves eventually increasing at an increasing rate. B. causes average fixed costs to decline continuously as output increases. C. causes the difference between average total cost and average variable cost to shrink as output increases. D. results in MC but not ATC curves eventually increasing at an increasing rate.