Question

CENGAGE MINDTAP Q Search this course Numbers and Graphs: Consumer Choice: Maximizing Utility and Behavioral Economics (Ch 20) 4. Working with Numbers and Graphs Q4 Each unit of good X costs $2, and each unit of good Y costs $1. The following table contains information on Gilberto's utility from goods X and Y. Total Utility of Good X (Utils) Total Utility of Good Y (utils) Units of Good x Units of Good Y 20 38 33 52 un WN Suppose Gilberto spends a total of $6 on good X and good Y each week. To maximize his utility, Gilberto should purchase of good X and of good Y. utils Given his budget, the maximum total utility Gilberto can obtain from the two goods is 8:54 PM ote

Answer 1

(4)

Units of Good X	Total Utility of Good X	Marginal utility of Good X	Marginal utility of good X / Price of X	Units of Good Y	Total Utility of Good Y	Marginal utility of Good Y	Marginal utility of good Y / Price of Y
1	20	20	10	1	18	18	18
2	38	18	9	2	33	15	15
3	52	14	7	3	45	12	12
4	62	10	5	4	55	10	10
5	66	4	2	5	63	8	8

Marginal utility of good X = change in Total utility of good X / Change in Unit of X

Marginal utility of good Y = change in Total utility of good Y / Change in Unit of Y

At utility maximizing point following conditions holds.

(Marginal utility of good X / Price of X ) = (Marginal utility of good Y / Price of Y )

The above condition holds when Gilberto consumes 1 unit of good X and 4 units of good Y.

1 unit of good X and 4 units of good Y will cost Gilberto $6 (i.e., $2 * 1 + $1 * 4 = $6)

This combination of goods is under the Gilberto's budget.

To maximize his utility, Gilberto should purchase 1 unit of good x and 4 units of good y

1 unit of good x gives total utility of 20 utils and 4 units of good y gives total utility of 55 utils.

Given his budget, the maximum total utility Gilberto can obtain from the two goods is 75 utils. (i.e., 20 + 55 = 75)

(3) Marginal utility = Change in total utility / Change in units of good.

Marginal Utility of fifth unit = (Total unit of 5th unit - Total unit of 4th unit) / (5 -4)

Marginal Utility of fifth unit = (48 utils - 44 utils) / (5-4)

Marginal Utility of fifth unit = 4 utils / 1

Marginal utility of fifth unit = 4 utils.

The marginal utility of fifth unit is 4 utils.