Answer to Question #228392 in Microeconomics for Chapi

Question

Assume a hypothetical consumer good X and good Y. the price of good X is 1 and price of good Y is 3 and the consumer budget is birr 10 for the two goods. where: Qx is quantity of good X, Qy is quantity of good Y and TUx and TUy is total Utility from consuming good X and Good Y respectively.
Based on the given information, answer the following questions.
a. Compute the marginal utility of the two goods
b. At what amounts of consumption does diminishing marginal utility starts to occur for the two goods?

Answer 1

Solution:

a.). The marginal utility of the two goods has been calculated as per the below table:

 

 

b.). Qx = Diminishing marginal utility starts to occur at Qx = 2. It starts to drop from 9 to eight when an additional unit of labor is added.

Qy = Diminishing marginal utility starts to occur at Qy = 4. It starts to drop from 15 to nine when an additional unit of labor is added.