Richard is consuming X and Y so that he is spending his entire income and MUx/Px = 6 and MUy/Py = 10. To maximize utility, he should
A) continue to consume the same amount of X and Y since he is already maximizing utility.
B) consume less of both X and Y.
C) consume more X and less Y.
D) consume less X and more Y.

Question

Quizplus · Accepted Answer

To maximize utility, Richard should allocate his spending so that the marginal utility per dollar spent on each good is equal. We know that MUx/Px = 6 and MUy/Py = 10, which means that Richard is getting more utility per dollar spent on Y than on X. To maximize utility, Richard should consume less X and more Y until the marginal utility per dollar spent is equal for both goods. This means that Richard should consume less X and more Y, which is represented by Choice D.

Richard Is Consuming X and Y So That He Is