A consumer currently spends a given budget on two goods, X and Y, in such quantities that the marginal utility of X is 10 and the marginal utility of Y is 8. The unit priceof X is $5 and the unit price of Y is $2. The utility-maximizing rule suggests that this consumer should do what ?

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windyyork windyyork · Answer 1 · 2019-11-27T06:34:15+01:00

Answer: In that case, consumer need to buy more units of Y and less units of X.

Step-by-step explanation:

Since we have given that

Marginal utility of X = 10

Marginal utility of Y = 8

Unit price of X = $5

Unit price of Y = $2

So, we know that

[tex]\dfrac{MU_x}{P_x}=\dfrac{10}{5}=2[/tex]

and

[tex]\dfrac{MU_y}{P_y}=\dfrac{8}{2}=4[/tex]

Since [tex]\dfrac{MU_x}{P_x}<\dfrac{MU_y}{P_y}[/tex]

In that case, consumer need to buy more units of Y and less units of X.

So, MU of y becomes lower and MU of x becomes higher until they becomes equal to each other to attain consumer's equilibrium.