Question

Sandra is faced with two choices. A Porsche costs $60,000, giving her an additional 1200 utils. On the other hand, a mountain bike costs $800, giving her an additional 20 utils. Using the Principle of Rational Choice, Sandra will choose:________.a. the Porsche.b. the Mountain Bike.c. neither, since it is impossible for Sandra to choose because the two goods have different prices.d. it is impossible to predict since there is not enough information provided.

Answer 1

Answer:

B. The Mountain Bike

Explanation:

We can find the cost of each util for the two options.

The Porsche costs $60,000 and represents 1,200 utils, therefore:

$60,000 / 1,200 = $50

This means that each util costs $50 for the Porsche.

Now, for the mountain bike:

$800/20 = $40

This means that each util costs $40 for the Mountain Bike.

Rational people think at the margin: Sandra will purchase the option that gives her the greatest marginal benefit, in this case, the mountain bike ($40 per util vs $50 per util).