Refer to the following graph:

The consumer's income is $600.
-If the price of X is $7.50 per unit, how many units of X will a utility-maximizing consumer choose?
A) 25
B) 30
C) 35
D) 50
E) none of the above

Question

Refer to the following graph:

The consumer's income is $600.
-If the price of X is $7.50 per unit, how many units of X will a utility-maximizing consumer choose?
A) 25 
B) 30 
C) 35 
D) 50 
E) none of the above

Quizplus · Accepted Answer

At $7.50 per unit of X, the marginal utility per dollar of X is highest (indicated by the peaks of the MU/Px ratio). At this price point, the consumer will choose the quantity where the MU/Px ratio is equal to the MU/Py ratio (where Py is the price of Y). This occurs at a quantity of 35 units of X. Therefore, the consumer will choose 35 units of X and 15 units of Y to maximize their utility given their income constraint.

Refer to the Following Graph