Question

For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility of good B is 60 and its price is $12. The consumer has allocated his entire budget. Is this consumer maximizing his total utility? Explain your answer.

Answer 1

Marginal utility for Good A: 25

Price per unit of A: $5

Marginal utility per $ sent on Good A: (25/ $5)= 5

Marginal utility for Good B: 60

Price per Unit of B: 60

Price per unit of B: $ 12

Marginal utility per $ spent on Good B: (60/ $12)= 5

As the marginal utility per $ spent on each good is equal, the consumer is maximizing his total utility.

As per Law, when the consumer spend the amounavailable on different goods in such a way the marginal utility derived per $ from last unit consumed of each good is equal, then he is maximizing satisfaction stage.