Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18. What quantities of X and Y should be purchased to maximize utility?
A) 2 of X and 1 of Y
B) 4 of X and 5 of Y
C) 2 of X and 5 of Y
D) 2 of X and 6 of Y

Question

Answer the question on the basis of the following marginal utility data for products X and Y. Assume that the prices of X and Y are $4 and $2, respectively, and that the consumer's income is $18.  What quantities of X and Y should be purchased to maximize utility?
A) 2 of X and 1 of Y 
B) 4 of X and 5 of Y 
C) 2 of X and 5 of Y 
D) 2 of X and 6 of Y

Quizplus · Accepted Answer

To maximize utility, the consumer should allocate their income in a way that the marginal utility per dollar is equal across all goods. From the given data, the marginal utility per dollar for X is highest at 3 units (12/4), whereas for Y, it is highest at 12 units (24/2). Therefore, the consumer should purchase 2 units of X and 5 units of Y, which will exhaust their entire income of $18 while maximizing their overall utility.

Answer the Question on the Basis of the Following Marginal