Asked by Chloe Myers on Jun 06, 2024
Verified
Answer the question on the basis of the following total utility data for products L and M.Assume that the prices of L and M are $3 and $4 respectively and that the consumer's income is $18. Units Total of L Utility 19215318420521 Units of M Total Utility 116228336440542\begin{array}{l}\begin{array}{ccc}\text { Units}&\text{ Total }\\\text { of L } & \text { Utility } \\\hline1 & 9 \\2 & 15 \\3 & 18 \\4 & 20 \\5 & 21\end{array}\begin{array}{ccc}\begin{array}{c}\text { Units } \\\text { of M }\\\hline\end{array} & \begin{array}{c}\text { Total } \\\text { Utility }\\\hline\end{array} \\1 & 16 \\2 & 28 \\3 & 36 \\4 & 40 \\5 & 42\end{array}\end{array} Units of L 12345 Total Utility 915182021 Units of M 12345 Total Utility 1628364042 Refer to the data.How many units of the two products will the rational consumer purchase?
A) 3 of L and none of M
B) 4 of L and 2 of M
C) 3 of L and 5 of M
D) 2 of L and 3 of M
Total Utility Data
Information that measures the overall satisfaction or benefit a consumer derives from consuming a certain quantity of goods or services.
Rational Consumer
A person who systematically and logically evaluates choices to maximize their satisfaction or utility.
Consumer's Income
The total amount of money earned or received by an individual or household, which affects their purchasing power and demand for goods and services.
- Utilize the notion of marginal utility in real-world scenarios of product use to ensure maximization of total utility.
- Assess how modifications in wealth and price levels influence consumer selections and the peak of utility.
Verified Answer
JC
Judylaine CarranzaJun 12, 2024
Final Answer :
D
Explanation :
To maximize utility within the budget constraint of $18, we calculate the marginal utility per dollar for each option and choose the combination that maximizes total utility without exceeding the budget. For L, the marginal utility per dollar decreases as more units are purchased, and for M, it also decreases but starts at a higher utility value. By comparing the utility gained per dollar spent, we find that purchasing 2 units of L ($3 each, total $6) and 3 units of M ($4 each, total $12) uses the entire budget of $18 and maximizes utility based on the given data.
Learning Objectives
- Utilize the notion of marginal utility in real-world scenarios of product use to ensure maximization of total utility.
- Assess how modifications in wealth and price levels influence consumer selections and the peak of utility.