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Max consumes two goods x and y, and ratio of marginal utility of x and y...

Max consumes two goods x and y, and ratio of marginal utility of x and y is always 2. The price of x is $2, and the price of y is $3. Income is $10. How much x does Max demand? How much y does Max demand?

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Answer #1

The equi marginal principle (consumption version) states that at the consumer will maximize their utility by allocating their budget such a way that the marginal utility per dollar for the last unit of each good consumed will be same for both the goods. In consumption the total utility maximization requires according to equimarginal principle

Here x and y are goods that the consumer purchases with all his money income. The inequaliy in the conditions stated above implies the marginal value per dollar is greater for last unit for any one of the good. The consumer will buy more of the good for which the marginal utility of every dollar spend is higher.

In this case,

Hence consumer will buy only x. The amount consumed of X will be 10/2=5 and amount of y consumed will be 0.

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