Answer:
The correct answer is option C.
Explanation:
An individual, Michael Kawamura, consumes only two goods, peanut butter, and ice-cream. He was consuming at the point of utility maximization when the price of peanut butter falls.
The utility derived from the consumption of two goods can be maximized when the ratio of marginal utility and price is equal for both the goods.
As the price of peanut butter falls, its marginal utility will reduce as well. The marginal utility of ice cream will rise.
The individual will consume more peanut butter and lesser ice cream to maximize utility.
