Question 9
Theory of Consumer BehaviourThe table below gives the marginal utilities of commodities y and x.
Q | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8
MUy | 16 | 14 | 12 | 10 | 8 | 6 | 4 | 2
MUx | 11 | 10 | 9 | 8 | 7 | 6 | 5 | 4
In the table above, the price of commodity y is ₦2 and that of x is ₦1 while the individual has an income of ₦12. Determine the combination of the two commodities the individual should consume to maximize his utility.
- A.6y and 4x
- B.3y and 6x
- C.5y and 5x
- D.3y and 3x
Show the answer and explanation
Answer: B (3y and 6x)
Explanation
Utility is maximised when MUy/Py = MUx/Px and all income is spent. At 3y and 6x: 12/2 = 6 = 6/1, and cost = 3 × ₦2 + 6 × ₦1 = ₦12.