Juanita is spending her entire income on goods X and Y. Her marginal utility from the last unit of X is 50 and the marginal utility from the last unit of Y that she consumes is 100. Juanita's utility is only maximized if

Question

Quizplus · Accepted Answer

For utility to be maximized, the ratio of the marginal utilities (MU) of the goods must equal the ratio of their prices. Since the MU of Y is twice that of X, the price of Y must be twice that of X for Juanita to maximize her utility.

Juanita Is Spending Her Entire Income on Goods X and Y