Question

Mr. Rational has $27 that he plans to spend purchasing 5 units of good X (priced at $3 per unit) and 6 units of good Y (priced at $2 per unit). The marginal utility of the fifth unit of X is 30, and the marginal utility of the sixth unit of Y is 30. If Mr. Rational is a utility maximizer, he should:

Answer 1

Mr. Rational is a utility maximizer, he should buy less of X and more of Y.

What do you mean by marginal utility?

• In economics, marginal utility refers to the additional pleasure or benefit (utility) a buyer receives by purchasing an additional unit of a good or service.

What is marginal utility and formula?

• The general rule in economics is that marginal utility equals total utility change divided by change in quantity of goods.
• The equation looks like this Total utility difference divided by amount of commodities difference equals marginal utility.
• Find the first event's overall utility.

According to the question:

The amount that Mr. Rational is going to spend = $27.

Quantity of good X = 5 units.

Price of good X (Px) = $3 per unit.

Marginal utility of 5th unit of X (MUx) = 30.

Quantity of good Y = 6 units.

Price of good Y (Py) = $2 per unit.

Marginal utility of 6th unit of Y (MUy) = 18.

Now find $\frac{M U x}{P x}=\frac{30}{3}=10$

Now $\frac{M U y}{P y}=\frac{18}{2}=9$

Since the $\frac{M U x}{P x} is greater than \frac{M U y}{P y} .$

So, good x will be substituted for y in order to reach the consumer equilibrium.

$\frac{M U x}{P x}=\frac{M U y}{P y}$

Learn more about marginal utility here:

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