You are choosing between two goods, X and Y, and your marginal utility from each

Question

You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. Enter your answers as whole numbers. If your income is $18.00 and the prices of X and Y are $4.00 and $2.00, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $2.00. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (a table showing prices and quantities demanded) for X. Start with the highest price first.

Explanation / Answer

MUx/MUy =Px/Py

a) MUx/MUy = 2

4X + 2Y = 18

X=2, Y=5

b) MUx at X=2 = 16

MUy at Y=5 is 8

c) 2X +2Y =18

MUx/MUy =1

X=4, Y=5

d) p q

4 2

2 4

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