Question

15. A consumer has an income of $24 to spend each day. The only two goods the consumer is interested in purchasing are goods A and B. The marginal-utility schedules for these two goods are shown in the table below. The price of A varies between $4 and $8 and the price of B is $2.

	Good A			Good B
Quantity	MU	MU/$8	MU/$4	MU	MU/$2
1	48			24
2	32			15
3	24			12
4	16			8
5	8			6
6	4			4

a) Complete the table by computing the marginal utility per dollar for successive units of A and B at the respective prices (to one or two decimal places).

(b) How many units of A and B will the consumer buy when maximizing utility and spending all income when the price of A is $8 and the price of B is $2? (Note: identify and show all the possible combinations then select the optimal combination)

c) How many units of A and B will the consumer buy when maximizing utility and spending all income when the price of A is $4 and the price of B is $2?  (Note: identify and show all the possible combinations then select the optimal combination)

Answer 1