Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K. If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing
A) 2 units of J and 7 units of K.
B) 5 units of J and 5 units of K.
C) 4 units of J and 5 units of K.
D) 6 units of J and 3 units of K.

Question

Answer the question on the basis of the following two schedules, which show the amounts of additional satisfaction (marginal utility) that a consumer would get from successive quantities of products J and K.  If the consumer has money income of $52 and the prices of J and K are $8 and $4 respectively, the consumer will maximize her utility by purchasing
A) 2 units of J and 7 units of K. 
B) 5 units of J and 5 units of K. 
C) 4 units of J and 5 units of K. 
D) 6 units of J and 3 units of K.

Quizplus · Accepted Answer

To maximize utility, the consumer should allocate their entire budget towards the commodities in such a way that the marginal utility per dollar spent is equal for both products. In this case, the consumer can afford to spend $52 on J and K, which if spent judiciously, can yield maximum satisfaction. At $8 per unit of J, the consumer can buy a maximum of 6 units, which yields marginal utility of 18. At $4 per unit of K, the consumer can buy a maximum of 13 units, which yields marginal utility of 8. Therefore, the consumer would allocate their budget such that the last dollar spent on each product yields the same extra satisfaction. 
The marginal utility per dollar spent on J=18/8= 2.25
The marginal utility per dollar spent on K=8/4=2
At the point where both marginal utilities per dollar are equal, the consumer maximizes their utility. Using the table, the combination that satisfies this condition is 4 units of J and 5 units of K. Therefore, the answer is C.

Answer the Question on the Basis of the Following Two