Fill This Form To Receive Instant Help
Homework answers / question archive / Columns 1 through 3 in the table below show the marginal utility which a particular consumer would get by purchasing various quantities of products A, B, and C
Columns 1 through 3 in the table below show the marginal utility which a particular consumer would get by purchasing various quantities of products A, B, and C. (1) (2) (3) Unit of product Marginal utility, A Marginal utility, B Marginal utility C First 18 39 12 Second 16 36 10 9 Third 14 33 Fourth 12 30 8 Fifth 10 27 7 Sixth 8 24 5 Seventh 6 21 3 If the prices of A, B, and C are $2, $3, and $1, respectively, and the consumer has $26 to spend on these three products, what combination of the three products should be purchased in order to maximize utility?
for calculating, this first we have to find the per rupee utility of each product at each level, and on doing so we will see that the per rupee utility of product B is highest for all seven units of product being:
1st unit's utility 13
2nd unit's utility 12
3rd unit's utility 11
4th unit's utility 10
5th unit's utility 9
6th unit's utility 8
7th unit's utility 7 (Formula = utility/per unit cost)
So, seven units of product B must be purchased.
Remaining amount of rupees = $(26 - 7*3) = $5
Now we see the marginal utility per rupee is maximum for product C.
So 5 units of product C must be purchased.
Thus, in order to maximize the utility 7 units of product B and 5 units of product C must be purchased