Problem #1 Assume that an individual consumes two goods, X and Y . The total uti
ID: 1231229 • Letter: P
Question
Problem #1
Assume that an individual consumes two goods, X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other good.
The price of X and Y are respectively $40 and $60. Use the following table of total utilities to answer the following questions.
Good
Total Utility of X
Total Utility of Y
1
20
45
2
38
78
3
54
108
4
68
135
5
80
159
6
90
180
c. The marginal utility per dollar spent on the third unit of X is __________.
d. The marginal utility per dollar spent on the second unit of Y is __________.
Good
Total Utility of X
Total Utility of Y
1
20
45
2
38
78
3
54
108
4
68
135
5
80
159
6
90
180
Explanation / Answer
c) The third unit of x gives you an increase in utility of 16 (=54-38) while it costs you $40. So your marginal utility is 16/40 = 0.4 d) The second unit of y gives you an increase in utility of 34 while costing you $60. So your marginal utility is 34/60 = 0.567
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