# maximize utility

1.

If the prices of A, B and C are $2. $3, and $1 respectively, and the consumer has $26 to spend on these three products, what combination of the three products should be purchased in order to maximize utility? Please show how you get the answer.

(Please see file attached)

2.

Can you explain and illustrate with graphs( 2 of them), the relationship between the MC curve and the supply curve of a perfectly competitive industry.

3.

The long run supply curve will tend to reflect the behaviour of production costs as an industry expands when more firms enter the industry. An increasing cost industry has an upward sloping supply curve.This is based on the assumption that as new firms enter, factor prices are bid up through the competition of more firms for the limited factor services.

Could you please explain why the long run supply curve can be downward sloping and the implication for the behavious of price as demand increases over the long run. Please illustrate this with graph.

https://brainmass.com/economics/utility/maximize-utility-36378

#### Solution Preview

answer to 1: In order to maximize utility, you need to first rank per dollar marginal utility and the pick from the highest to lowest. The result is that you buy 2 units of A, 6 units of B and 4 units of C. This will give you total utility 262, the highest utility possible with $26. ...

#### Solution Summary

This job shows how to maximize utility.

Quantities to Maximize Utility

You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. if your income is $9 and the price of X and Y are $2 and $1, respectively,

Units of X Marginal Utility for X

1 10

2 8

3 6

4 4

5 3

6 2

Units of Y Marginal Utility for Y

1 8

2 7

3 6

4 5

5 4

6 3

a) What quantities of each will you purchase to maximize utility?

b) What total utility will you realize?

c) Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase?

d) Using the two prices and quantities for X (the demand for X when price is $1 and the demand for X when the price is $2) derives the price elasticity of demand for X.