Reference no: EM1331311

Calculating the optimal bundles of consumption

Assume that an individual consumes two goods, X and Y. The total utility of each good is independent of the rate of consumption of the other good.

The price of X and Y are $40 and $60 respectively. Use the following table of total utilities to answer the following questions.

Good Total Utility of X Total Utility of Y
1 20 45
2 38 78
3 54 108
4 68 135
5 80 159
6 90 180

a. The marginal utility of the fourth unit of Y is _.
b. The marginal utility of the fifth unit of X is _.
c. The marginal utility per dollar spent on the third unit of X is _.
d. The marginal utility per dollar spent on the second unit of Y is _.
e. If the consumer has $420 to spend, _ unit of X and _ units of Y maximize utility subject to the budget constraint. Explain.
f. If the consumer has $220 to spend, _ units of X and _ units of Y maximize utility subject to the budget constraint. Explain.
Solution Summary

Solution depicts the steps to calculate the optimal bundles of consumption subject to given levels of budget.