Question

1. Consider the following table, which lists Mary's marginal utility schedule for Good X and Good Y: Given the price of Good X (P) is $10, the price of Good Y (Py) is $3, and Mary's total budget is $59, please answer the following questions. Quantity Marginal Utility Quantity Marginal Utility of (MU) of Good X MU/P of (MU) of Good Y MU/P, Good X Good Y 300 202 13.33 153 105 6.66 8.5 7 5.67 a) Please complete the missing numbers on the Table. b) How many Good X and Good Y will Mary should buy per month to maximize her total utility? Show all your calculations. c) What is the total utility she will get at the end of the month? Show all your calculations.

Answer 1

a)

Quantity of good X Mux MU / PX Quantity of good Y MUY MU / Py 1 300 200 150 120 30 20 15 60 40 20 13.33 10 30 12 24 20 100 10 6.66 90 18 85 8.5 5.67

b) Mary can maximize her total utility by purchasing the combination of two goods at which, MU / Px = MU / Py. From the table, it is seen that MU / Px = MU / Py = 10, when Mary purchases 5 units of good X and 3 units of good Y. The total expenditure = ($10 * 5) + ($3 * 3) = $59.

Thus, Mary should purchases 5 units of good X and 3 units of good Y.

c) Total utility she gets = (300 + 200 + 150 + 120 + 100) + (60 + 40 + 30) = 1,000.