Question

The satisfaction gained by consuming x units of good 1 and y units of good 2 is measured by the utility function

U = 2x2 + 5y3

Currently an individual consumes 20 units of good 1 and 8 units of good 2.

(a) Find the marginal utility of good 1 and hence estimate the increase in satisfaction gained from consuming one more unit of good 1.

(b) Find the marginal utility of good 2 and hence estimate the increase in satisfaction gained from consuming one more unit of good 2

Answer 1

$a)Mu_1= 4x$

= $4\times 20= 80$

Satisfaction of consuming an extra unit of good 1

$= Mu_1\Delta1$ =$80\times1= 80$

b) $Mu_ 2= 15Y^2$

$= 15(8^2)= 15\times 64= 960$

Satisfaction of consuming an extra unit of good

$=Mu_2\Delta2= 960\times 1= 960$