Answer to Question #284438 in Microeconomics for Bayisa

Question

Suppose a particular consumer has 8$ to be spent on two goods , A and B The unit price of good A is 2$ and the unit price of good B 1$. The marginal utility (MU) she gets from consumption of the two goods is given below.

Quantity MU_A. MU_B

1. 36. 30

2. 24. 22

3. 20. 16

4. 18. 12

5 16. 10

6. 10. 4

a. Based on the Cardinal Utility analysis,what is the combination of two goods that gives maximum utility to the consumer?

b. What is the total utility at the utility maximization level?

Answer 1

a) Cardinal Utility is the idea that economic welfare can be directly observable and given a value. Cardinal utility analysis is based on the cardinal measurement of utility which assumes that utility is measurable and additive. Thus, maximum utility will be derived from the combination with higher values of marginal utility. Combination of MU of 36 for product A and 30 for product B.

b) It will be 36+30 = 66