Question

Maria's preferences are strictly convex. At bundle A near the middle of her budget line, Maria's marginal utility of good 1 is equal to 6.4 and her marginal utility of good 2 is equal to 4.2. The price of good 1 is equal to 3.9 and the price of good 2 is 2.2. What should Maria do to maximize her utility, buy more of good 1, less of good 1 or simply consume the amount in bundle A?

Enter 0 below if "buying more of good 1 and less of good 2 is optimal".

Enter 1 below if "buying more of good 2 and less of good 1 is optimal".

Enter 9 below if bundle A is optimal.

Answer 1

Enter 1 as "buying more of good 2 and less of good 1 is optimal"

The Buble is optimum if the utility per dollar is equal for both goods if not then the consumer should buy higher of the good with higher MU/$ and less for the good with MU/$ is lower.

MU/$=MU/price of the good

MU/$ for good 1=6.4/3.9=1.64102564=1.64

MU/$ for good 2=4.2/2.2=1.90909091=1.91

The MU/$ is higher for good 2 so Maria should buy more of good 2 and lower the consumption of good 1.