Sanjay is consuming X and Y so that he is spending his entire income and MU_x/P_x = 8 and MU_y/P_y = 14. To maximize utility, he should consume A) the same amount of X and Y since he is already maximizing utility. B) less of both X and Y. C) more X and less Y. D) less X and more Y.

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Quizplus · Accepted Answer

To maximize utility, the marginal utility per dollar spent should be equal for both goods. Since MU_y/P_y is greater than MU_x/P_x, Sanjay should consume less of X and more of Y.

Sanjay Is Consuming X and Y So That He Is