At a consumer optimum, for all goods purchased, marginal utility per dollars spe

Question

At a consumer optimum, for all goods purchased, marginal utility per dollars spent is equalized. A high school student is deciding between attending Western State University and Eastern state University, The student cannot attend both universities simultaneously. Both are fine universities but the reputation of Western is slightly higher, as in the tuition, Use the rule of consumer optimum to explain how the student will go about deciding which university to attend

Explanation / Answer

The student will look at the additional value that going to Western will bring and compare that with the additional cost. At the consumer optimum, marginal cost is the same as marginal utility. Thus, if marginal utility is currently lower than marginal cost, then it will be fine taking on extra cost - but only up to a point where marginal cost equals marginal utility. If marginal utility is higher than marginal cost, then the cost that you are paying for an extra unit of utility is higher than optimum and thus you should lower your utility in order to lower cost. What this looks like in this situation is this: If the student looks at the extra utility he gets from going to Western, but the marginal cost (additional tuition) is higher than the marginal utility (mostly from better reputation), then that means that he is paying too much for additional utility. While you are still getting utility from going to a better school, you are paying a higher price than optimum and thus will probably be better off at Eastern. However, if the student looks at Eastern and sees that his marginal utility is lower than marginal cost, then that means that his marginal utility is below optimum and thus can increase his marginal utility for a cost that is lower than optimum. Ideally, the student wants to be at the optimum of marginal utility equals marginal cost, but with this situation it may not happen. Thus, the student needs to evaluate his two scenarios and decide whether his marginal cost is higher (or lower) than his marginal revenue in each situation. (such that if MC>MR, then you want to go with the least costly situation but if MC

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