Paul is consuming X and Y so that / = 18 and / = 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

Paul is consuming X and Y so that  /  = 18 and  /  = 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.

Quizplus · Accepted Answer

The equimarginal rule states that for a consumer maximizing utility, the marginal utility per dollar spent on each good must be equal. We can use this rule to determine the optimal combination of X and Y for Paul.

From the given information, we know:

MU_X/P_X = 18
MU_Y/P_Y = 14

Where MU_X represents the marginal utility of X, P_X represents the price of X, MU_Y represents the marginal utility of Y, and P_Y represents the price of Y.

To apply the equimarginal rule, we need to compare the ratios of marginal utility to price for each good:

(MU_X/P_X) / (MU_Y/P_Y) = (18/1) / (14/1) = 1.286

This ratio tells us that for each additional dollar spent, Paul is gaining 1.286 times as much incremental utility from X as from Y. To maximize his utility, he should adjust his consumption so that this ratio is equal to the ratio of prices:

P_X / P_Y = 1/1 = 1

So, Paul should consume more of X and less of Y until the ratios of marginal utility to price are equal. Since he is currently getting more utility per dollar spent on X, he should shift some of his consumption from Y to X to reach the optimal combination. Therefore, the best choice is C: consume more X and less Y.

Paul Is Consuming X and Y So That