The table below shows the amounts of additional satisfaction which a consumer wo

Question

The table below shows the amounts of additional satisfaction which a consumer would get from successive quantities of products Marha and Nem. Units of Nem MU 28 20 T0 Units of Marha MU 56 1 48 2 32 3 20 16 6 a. Refer to the above data. If the consumer has a money income of $52 and the prices of Marha is S8 and the price of Nem is $4, the consumer will maximize her utility by purchasing:--units of Marhaand_-units of Nem. b. What level of total utility is realized from the equilibrium combination of Marha and Nem?

Explanation / Answer

Ans : a ) 4 units of Marha and 5 units of Nem.

Ans : b ) Total utility from the equilibrium combination of Marha and Nem is 276.

Explanation:

This is explained in the following table.

The consumer is in equilibrium when MU of Marha / Price of Marha = MU of Nem / Price of Nem

The given money income = $ 52 , price of Marha = $ 8 and price of Nem = $ 4

According to the equilibrium condition the consumer will purchase 4 units of Marha and 5 units of Nem.

Total spending =( $ 8 * 4 ) + ( $ 4 * 5 ) = $32 + $20 = $52.

Total utility at this equilibrium = 160 + 116 = 276

Units of Marha MU m MU m / Price of m Total utility Units of Nem MU n MU n / Price of n Total utility 1 56 7 56 1 32 8 32 2 48 6 104 2 28 7 60 3 32 4 136 3 24 6 84 4 24 3 160 4 20 5 104 5 20 2.5 180 5 12 3 116 6 16 2 196 6 10 2.5 126 7 12 1.5 208 7 8 2 134 8 8 1 216 8 6 1.5 140

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