Question

Suppose marginal utility of good X is 20 while its price is Rs. 4 per unit and marginal utility of

Y good is 50 while its price is Rs.5 per unit .The individual to whom this information applies is

spending 20 on each good .Is he maximizing his satisfaction.?

Answer 1

Solution:

 

Profit maximization: $\frac{MU_{x} }{MU_{y} } = ​ \frac{Px}{Py }$

 

$\frac{20}{50 } = \frac{4}{5 }$

0.4 = 0.8

 

Budget constraint: I = PxX + PyY

 

20 = 4X + 5Y

 

The individual is not maximizing his satisfaction since there is no equality: