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kap26
2 months ago
10

A consumer makes purchases of an existing product X such that the marginal utility is 10 and the price is $5. The consumer also

tries a new product Y and at the current level of consumption it has a marginal utility of 8 and a price of $1. The utility-maximizing rule suggests that this consumer should _____?
Business
1 answer:
stepan [3.5K]2 months ago
4 0

Answer:

To maximize utility, the consumption of product Y should be increased while reducing the intake of product X.

Explanation:

The utility-maximizing principle asserts that a consumer optimizes utility when the marginal utility per dollar spent is equal for both products.

For Product X, the marginal utility per dollar is:

\frac{MU_X}{P_X}=\frac{10}{5}

= 2 utils per dollar

For Product Y, the marginal utility per dollar is:

\frac{MU_Y}{P_Y}=\frac{8}{1}

= 8 utils per dollar

According to this principle, the consumer should increase the consumption of product Y and decrease that of product X.

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