You have $5 to spend on any combination of goods A and
A.The utility maximizing combination here is to buy 1 of A and 3 of
B.Are you maximizing your utility? If so,explain why.If not,what combination of goods should you buy?
(a)The completed table:
(b)If you purchase 2 of A and 1 of B you are not maximizing your utility.To see why not,use the utility maximizing rule.For good A compute MUA/PA = 7 and for good B compute MUB/PB = 30.Since MUB/PB > MUA/PA you are not at a utility maximizing combination of goods;you should reallocate your $5 and buy more B and less
B.The price of good A is $2 and the price of good B is $1.You have calculated the following utility values for yourself:
(a)Fill in the empty columns of the table.
(b)You have purchased 2 units of good A and 1 unit of good
B.With this latter combination we see that MUA/PA = 8 = MUB/PB and we have satisfied the utility maximizing rule.
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