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The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The...

The table shows the marginal-utility schedules for goods A and B for a hypothetical consumer. The price of good A is $1, and the price of good B is $2. The income of the consumer is $8. Good A Good B Quantity MUA Quantity MUB 1 10 1 16 2 9 2 14 3 8 3 12 4 7 4 10 5 6 5 8 6 5 6 6 7 4 7 4 If the price of B falls to $1, while the price of A and the consumer's income stay the same, what would be the utility-maximizing combination of goods A and B?

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Answer #1

Utility maximizing combination would be one where

MUA/MUB=PA/PB

At price of good A at $1 and price of good B also at $ 1 PA/PB=1

Utility maximizing combination would be one where MUA/MUB=1 Or MUA= MUB.

From the given table we found that MUA= MUB on consumption of 1unit of good A and 4 units of good B, i.e. 10. But at this combination income spent is $5. So the remaining 3 dollars would be spent as $2 on Good A and $1 on good B so that MUA and MUB would be same at 8. So the utility maximizing combination of good A and good B would be 3units of good A and 5 units of good B, giving total utility of 16+14+12+10+10+9+8+8=87.

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