Question

Use the table below to answer the following question. Assume that the price of product A is $6.02 while the price for product MUA MUB 22.5 is $10.71. The buyer has a budget of 19.5 18 16.5 13.5 105 Given the marginal utilities The optimal bundle is A. 6 of product A and 4 of product B 8.8 of product A and 3 of product B C. 7 of product A and 4 of product B 0.6 of product A and 5 of product B L. 6 of product A and 3 of product B F. 7 of product A and 5 of product B

Answer 1

Answer

Option C

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A consumer consumes up to the budget is done and the marginal utility per dollar from each next unit is a higher

budget =85

per dollar MU =MU/P

Q	MUA	MUA/P	MUB	MUB/P
1	22.5	3.74	27	2.52
2	21	3.49	26	2.43
3	19.5	3.24	25	2.33
4	18	2.99	24	2.24
5	16.5	2.74	23	2.15
6	15	2.49	22	2.05
7	13.5	2.24	21	1.96
8	12	1.99	20	1.87
9	10.5	1.74	19	1.77
10	9	1.50	18	1.68

first, the consumer purchase 5 units of A as the MU per dollar higher and spend 6.02*5=30.1

then one unit of B and so on up to the MU per dollar from both good is equal

A=7 and B=4 where MU per dollar is 2.24 and spending is

6.02*7+4*10.71

=84.98

so the consumer consumes 6 units of A and 4 units of B to maximize utility