Explore BrainMass
Share

Explore BrainMass

    Calculating the optimal bundles of consumption

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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.

    © BrainMass Inc. brainmass.com October 10, 2019, 5:54 am ad1c9bdddf
    https://brainmass.com/economics/utility/calculating-the-optimal-bundles-of-consumption-521383

    Solution Preview

    Please refer attached file for better clarity of tables.

    Good Total Utility of X Total Utility of Y Marginal Utility* MU per dollar spent
    TUx TUy MUx MUy MUx/Px Muy/Py
    1 20 45 20 45 0.50 0.75
    2 38 78 18 33 0.45 0.55
    3 54 108 16 30 0.40 0.50
    4 68 135 14 27 ...

    Solution Summary

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

    $2.19