Answer to Question #148435 in Macroeconomics for hp

Question

Suppose the Utility function of a consumer is U = 3X + 2Y, where X denotes the quantity of good X and Y denotes the quantity of good Y. The price of X is £1 while the price of Y is £1. The income of the consumer is £10. What is the optimal bundle chosen by the consumer?


a.
X = 2, Y = 8


b.
X = 0, Y = 10


c.
X = 10, Y = 0


d.
X = 5, Y = 5

Answer 1

c

U = 3X + 2Y

Marginal utility of x ,dU/dX = 3

Marginal utility of y ,dU/dY = 2

Px = 1 and Py = 1

MUx/Px > MUy/Py

3 > 2

Therefore, whole income would be spend on Good X (CASE OF CORNER SOLUTION)

INCOME / Px = 10 / 1 = 10 units of x

Therefore, 

optimal consumption bundle X = 10 and Y = 0

Correct option is c