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?

Answer 1

The quantities of good X and good Y that would be bought to maximize the utility value would be:

C). X - 2; Y - 5

Marginal Utility

"Marginal Utility" is defined as the extra utility or contentment received by a customer on the purchase of an extra unit of a good.

Given that,

Income $=$ $$9$

Price of good X $=$ $$2 /unit$

Price of good Y $=$ $$1/unit$

Units of X    $MU_{X}$             Units of Y            $MU_{Y}$    

 1                10                       1                       8

 2                 8                        2                       7

 3                 6                       3                       6

 4                 4                        4                        5

 5                  3                        5                        4

 6                  2                        6                       3

We know that,

For maximum utility

$= MU_{X} /Price of X = MU_{Y} /Price of Y$

So,

$10/2 = 5/1$

$2$ × $2 + 5$ × $1 = 9$

2 units of X and 5 units of Y gives maximum utility at the given income with a total utility of $48.

Thus, option C is the correct answer.

Find out more information about "Marginal Utility" here:

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