If a consumer purchases a combination of commodities x and y such that MU_x/P_x = 20 and MU_y/P_y = 10, to maximize utility, the consumers should buy. A) less of x and more of y. B) more of x and less of y. C) more of both x and y. D) less of both x and y.

Question

Quizplus · Accepted Answer

To maximize utility, the consumer should equate the marginal utility per dollar spent on each good. Since the marginal utility per dollar spent on x (20) is higher than that on y (10), the consumer should buy more of x and less of y to equalize these ratios.

If a Consumer Purchases a Combination of Commodities X and Y