Paul is consuming X and Y so that MUₓ/Pₓ = 18 and MUᵧ/Pᵧ = 14.Using the equimarginal rule,Paul should
A) continue to consume the same amount of X and Y, as he is already maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.

Question

Quizplus · Accepted Answer

The equimarginal rule states that the consumer should allocate their income in such a way that the marginal utility per dollar spent is the same for all goods consumed.

Given MUₓ/Pₓ = 18 and MUᵧ/Pᵧ = 14, we can conclude that Paul is currently spending too much on Y relative to X (i.e., he is not allocating his income efficiently).

To maximize his utility, Paul should consume more X and less Y until the marginal utility per dollar spent on X equals the marginal utility per dollar spent on Y. Therefore, the best choice is to consume more X and less Y, so option C is the correct answer.

Paul Is Consuming X and Y So That MUₓ/Pₓ =