Question

Quantity of Product A	Total Utility	Marginal Utility	Quantity of Product B	Total Utility	Marginal Utility
1	16	16	1	30	30
2	30	14	2	46	16
3	42	12	3	61	15
4	52	10	4	75	14
5	60	8	5	88	13
6	66	6	6	100	12
7	70	4	7	111	11

Please refer to the table above. The price of Product A is $1 and the price of Product B is $3. How many of Product A is in the optimal consumption choice if this consumer is limited to spending $25?

Provide your answer below:

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Answer 1

Quantity of A	Total Utility	Marginal Utility	MUA/PA	Quantity of B	Total Utility	Marginal Utility	MUB/PB
1	16	16	16	1	30	30	10
2	30	14	14	2	46	16	5.33
3	42	12	12	3	61	15	5
4	52	10	10	4	75	14	4.66
5	60	8	8	5	88	13	4.33
6	66	6	6	6	100	12	4
7	70	4	4	7	111	11	3.66

MUA/PA = Marginal Utility / Price of good A

MUB/PB = Marginal Utility / Price of good B

A consumer achieves maximum satisfaction where

1. MUA/PA = MUB/PB
2. Fulfill the budget equation

MUA/PA = MUB/PB is equal at two places

1) 4 units of good A and 1 unit of good B

2) 7 units of good A and 6 units of good B

Now we have to check which of these combinations are fulfilling the budget equation.

Budget Equation = 1A + 3B = 25 (where A is number of units of A and B is number of units of B)

So the second combination is fulfilling the budget equation which is 7 units of good A and 6 units of good B.

Hence 7 units of good  A is in the optimal consumption choice if this consumer is limited to spending $25