MUM TU. MU./P. MU. TU, MU/P. Quantity N 0 1 Quantity M 0 1 2 3...

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MUM TU. MU./P. MU. TU, MU/P. Quantity N 0 1 Quantity M 0 1 2 3 4 5 6 42 78 108 132 150 162 2 3 4 5 6 20 16 12 8 4 2 Complete

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Answer 1

Answer #1

Quantity	MUm	TUm	MUm/Pm	TUn	MUn	TUn/Pn
1	42	42	42/3= 14	20	20	20/2= 10
2	78-42= 36	78	36/3= 12	20+16=36	16	16/2= 8
3	108-78= 30	108	30/3= 10	36+12=48	12	12/2= 6
4	132-108= 24	132	24/3= 8	48+8=56	8	8/2= 4
5	150-132=18	150	18/3= 6	56+4=60	4	4/2= 2
6	162-150=12	162	12/3= 4	60+2=62	2	2/2= 2

Marginal utility is the change in total utility when one more unit of good is consumed. MU= TUx - TUx-1

Marginal utility per dollar = MUx/ price of good x

The optimal combination is 5 units of good M and 3 units of good N. It satisfies equi- marginal priniciple of utility as the marginal utility of dollar from last unit of both goods is equal to 6. It satisfies budget constraint also since $3 x 5 + $2 x 3 = $21.

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