Question

The following two schedules show the amounts of additional satisfaction (marginal utility that a consumer would get from successive quantities of products A and B. Instructions: Enter your answers as whole numbers Units of Good A MU of Good A Price of A-56 MUIP for A Units of Good B Mul of Good B Price of B=$1 MUP for B 72 60 . 54 2 42 30 4 30 S524 0 20 7 12 7 38 a. The consumer has a money income of 304 To e utility, this consumer should purchase u nts) of good is) of pood A and f b. Now suppose the price of good s to 10 for the purchase ta) of good and money income the consumer should no

Answer 1

Ans:

In order to maximize utility, the decision should be based on marginal utility per dollar.

marginal utility per dollar = marginal utility / price

A)

7 units of good A and 5 units of good B

Explanation

Units of Good A	MU of Good A, price of A = $6	MU/P for A	Units of Good B	MU of Good B, price of B = $4	MU/P for B
1	72	12	1	48	12
2	66	11	2	42	10.5
3	60	10	3	36	9
4	54	9	4	30	7.5
5	48	8	5	24	6
6	42	7	6	20	5
7	36	6	7	12	3

when money income is $64 in order to maximize utility, this consumer should purchase 7 units of good A and 5 units of good B.

b)

4 units of good A and 6 units of good B.

Explanation

Units of Good A	MU of Good A, price of A = $10	MU/P for A	Units of Good B	MU of Good B, price of B= $4	MU/P for B
1	72	7.2	1	48	12
2	66	6.6	2	42	10.5
3	60	6	3	36	9
4	54	5.4	4	30	7.5
5	48	4.8	5	24	6
6	42	4.2	6	20	5
7	36	3.6	7	12	3

when money income is $64 in order to maximize utility, this consumer should purchase 4 units of good A and 6 units of good B.