Sue is maximizing her utility. Her MUx/Px = 10 and MUy = 40. Then the price of Y must be
A) $1.
B) $4.
C) $10.
D) $40.

Question

Quizplus · Accepted Answer

To maximize utility, the consumer should allocate their spending in such a way that the marginal utility per dollar spent on each good is equal.

MUx/Px = 10, which means that the marginal utility per dollar spent on X is 10.

Therefore, MUy/Py = 10. Since MUy = 40, Py must be 4 so that the marginal utility per dollar spent on Y is also 10 (40/4 = 10).

Hence, the price of Y must be $4.

Sue Is Maximizing Her Utility