Use the table below to answer the following question.
Table 8.2.4

-Refer to Table 8.2.4.Suppose the price of X is $1 and the price of Y is $1.How much of each should you purchase to maximize utility from a total expenditure of $11?
A)3 units of X and 8 units of Y
B)4 units of X and 7 units of Y
C)5 units of X and 6 units of Y
D)6 units of X and 5 units of Y
E)7 units of X and 4 units of Y

Question

Use the table below to answer the following question.
Table 8.2.4
 
-Refer to Table 8.2.4.Suppose the price of X is $1 and the price of Y is $1.How much of each should you purchase to maximize utility from a total expenditure of $11?
A)3 units of X and 8 units of Y 
B)4 units of X and 7 units of Y 
C)5 units of X and 6 units of Y 
D)6 units of X and 5 units of Y 
E)7 units of X and 4 units of Y

Quizplus · Accepted Answer

To maximize utility, we need to find the combination of X and Y that gives us the highest total utility for a given budget of $11. We can do this by calculating the marginal utility per dollar for both X and Y and then comparing them.

For X, the marginal utility per dollar = MUx/Px = (3-1)/(1) = 2
For Y, the marginal utility per dollar = MUy/Py = (5-3)/(1) = 2

Since the marginal utility per dollar for both X and Y is the same, we can allocate the budget evenly between them. Thus, we can spend $5.50 on X and $5.50 on Y.

Using the table, at $1 per X and $1 per Y, we can purchase:
- 5 units of X for $5
- 6 units of Y for $6

This leaves $0.50 for X and $0.50 for Y. We can purchase another half unit of X, which gives us a total expenditure of $5.50 for X and $5.00 for Y. This gives us the following allocation:
- 5.5 units of X for $5.50
- 6 units of Y for $6.00

Therefore, the best choice is to purchase 5 units of X and 6 units of Y.

Use the Table Below to Answer the Following Question