Complete question:
You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table above. If your income is $9 and the prices of X and Y are $2/unit and $1/unit, respectively, what quantities of each will you purchase to maximize utility?
A. X - 3; Y - 3
B. X - 4; Y - 1
C. X - 2; Y - 5
D. X - 1; Y - 6
Answer:
X - 2; Y - 5
Solution:
Total utility is maximized when
MUx / Px = MUy / Py
This is satisfied when x = 2 [MUx / Px = 16 / 2 = 8] and
y = 5 [MUy / Py = 8 / 1 = 8].
Total cost = 2 x $2 + 5 x $1 = $9 [Budget is exhausted]
Note: Another option would be x = 4 & y = 6, but that would exceed the budget.
