Answer:
Jessica should consume more of good A.
Explanation:
Jessica spends all her income on two goods, A and B.
The price of A is $5, and the price of B is $7.
At the current consumption bundle, the marginal utility of A is 10, and the marginal utility of B is 21.
The total utility is maximized when the ratio of marginal utility and price of the goods consumed is equal for all the goods in the bundle.
The ratio for Good A
= [tex]\frac{10}{5} [/tex]
= 2
The ratio for good B
= [tex]\frac{21}{7} [/tex]
= 3
Since the ratio is higher for good B, the consumer should shift from consumption of good B to good A until the ratio is equal for both the goods.
