Explore BrainMass
Share

Maximizing Consumer Utility Under a Budget Constraint

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

Let M(U)a = z = 10 - x and M(U)b = z = 21 - 2y, where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B.
Assume that the consumer has $10 to spend on A and B -- that is, x + y = 10.
How is the $10 best allocated between A and B?
How much utility will the marginal dollar yield?

© BrainMass Inc. brainmass.com September 22, 2018, 5:11 am ad1c9bdddf - https://brainmass.com/economics/utility/maximizing-consumer-utility-under-a-budget-constraint-444797

Solution Preview

The consumer maximizes his total utility when MUa = MUb

Let MUa = MUb
10 - x = 21 - 2y
Rearranging:
2y = 11 + x ...

Solution Summary

Given a consumer's utility functions and budget for two products, this solution shows how to calculate the consumer's utility-maximizing allocation between the two products in 87 words with calculations clearly shown.

$2.19