What is the consumption bundle to maximize the utility level? What is the maximum utility level?

Solutions

Expert Solution

A consumer can consume according to his budget constraint and will always be wanting to maximise his utility level given the income constraint. He can do so by selecting the consumption bundle which gives the maximum utility to the consumer. He will do so by choosing the consumption bundle that lies on the outermost indifference curve or the highest indifference curve, as higher the indifference curve, higher is the utility, but keeping in mind that the indifference curve touches the budget line on the graph.

So the consumption bundle that maximizes the utility level, will be the consumption bundle that lies on the point where the highest indifference curve will touch the budget line. In other words , we can say that the consumption bundle will be the point on the graph, where the budget line will act a tangent to the indifference curve and the slope of both the indifference curve and the budget line will be same. The maximum utility level will be the value of the utility of the indifference curve on which the consumption bundle which gives maximum utility lies on.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Your current consumption bundle has 5 apples and 10 oranges. Given the current level of consumption,...

Your current consumption bundle has 5 apples and 10 oranges. Given the current level of consumption, if you would consume an additional apple, you would gain 10 additional utils and if you would consume an additional orange, you would gain 20 additional utils. Given that the price of apple is $1 and the price of oranges is $0.50, Is the Optimal Condition satisfied at the current level of consumption? Explain. If not satisfied, what adjustment should you make and why?

What is the condition on consumer utility that is met when consumers maximize utility

Problem 1 What is the condition on consumer utility that is met when consumers maximize utility (hint: it is a formula). Describe the behavior of the consumer that this formula represents (what are they doing and why is it an optimum). Problem 2 What is the goal of the firm? What is the condition that is met when firms achieve this goal? Describe in words why this condition leads to an optimum for the firm.

David consumes only ice cream and Dr. Pepper. At his current consumption bundle his marginal utility from...

David consumes only ice cream and Dr. Pepper. At his current consumption bundle his marginal utility from a scoop of ice cream is 8 and his marginal utility from a can of Dr. Pepper is 4. The current price of a scoop of ice cream is 50 cents while the cost of a can of Dr. Pepper is 35 cents. Is David maximizing his utility? Explain why or why not and, if he is not, explain how he could increase his utility...

In order to maximize the steady state level of consumption per worker, the Golden Rule steady...

In order to maximize the steady state level of consumption per worker, the Golden Rule steady state capital stock per worker (k*gold) satisfies the condition that the marginal productivity of capital at the k*gold capital level equals the depreciation rate . Graphically illustrate how to find the k*gold. (20 points)

For most consumers, maximizing utility through consumption generally means finding good deals in order to maximize...

For most consumers, maximizing utility through consumption generally means finding good deals in order to maximize the utility received for each dollar spent. However, some makers of luxury goods believe that their customers actually achieve utility by paying high prices, such that lowering prices may lead to reduced sales. How is this counterintuitive view rationalized in our analysis of consumer behavior and the utility-maximizing rule?

The primary goal of households is to maximize their utility.

The primary goal of households is to maximize their utility. True False

What is the marginal utility when total utility increases from 34 to 42 after consumption of...

What is the marginal utility when total utility increases from 34 to 42 after consumption of 1 unit? A) 2 B) 4 C) 6 D) 8 Calculate total utility based on the following information; Unit 1 Marginal Utility = 9 Unit 1 Marginal Utility = 8 Unit 1 Marginal Utility = 4 Unit 1 Marginal Utility = 1 A) 22 B) 23 C) 24 D) 25 Calculate accounting profit using the following data: Explicit costs = $40,000 Implicit costs =...

How does a change in price or a change in income affect the optimal consumption bundle?...

How does a change in price or a change in income affect the optimal consumption bundle? For example, if the substitution effect outweighs the income effect, how does the optimal consumption bundle change?

1. At Joe’s current consumption bundle of A= (4,4) his MRS is 2. He is on...

1. At Joe’s current consumption bundle of A= (4,4) his MRS is 2. He is on his budget constraint and hefaces price of 1 for x and 2 for y. (a) How much income is he able to devote to consuming x and y? (b) What proportion of his income is he currently devoting to x? (c) If you were to counsel Joe as to how he should reallocate purchases of x and y, would you suggest he increase, decrease,...

how to maximize marginal utility per price for a good?

Subjects