Suppose the marginal utility of a unit of good x = MU_x, the marginal utility of a unit of good y = MU_y, P_x= price of a unit of good x, and P_y= price of a unit of a good y. A utility-maximizing consumer who purchases two goods, x and y, allocates her budget in such a way that _____. A)MU_x = MU_y B)TU_x = TU_y C)MU_x/P_y = MU_y/P_x D)TU_x/P_y = TU_y/P_x E)MU_x/P_x = MU_y/P_y

Question

Quizplus · Accepted Answer

A utility-maximizing consumer allocates their budget such that the marginal utility per dollar spent on each good is equal, i.e., MU_x/P_x = MU_y/P_y.

Suppose the Marginal Utility of a Unit of Good X