Jon is consuming X and Y so that he is spending his entire income and MUx/Px = 8 and MUy/Py = 4. To maximize utility, he should consume
A) the same amount of X and Y since he is already maximizing utility.
B) less of both X and Y.
C) more X and less Y.
D) less X and more Y.

Question

Quizplus · Accepted Answer

The principle of equi-marginal utility states that the consumer will maximize utility when the marginal utility per dollar spent on each good is equal.

Given that MUx/Px = 8 and MUy/Py = 4, we can see that for every dollar spent on X, the consumer is getting 8 units of satisfaction, whereas for every dollar spent on Y, the consumer is getting 4 units of satisfaction.

Therefore, to maximize utility, the consumer should spend more money on X and less money on Y, until the marginal utility per dollar spent on both goods becomes equal.

Thus, the answer is C - Jon should consume more X and less Y.

Jon Is Consuming X and Y So That He Is