Question

Suppose that fiona spends all of her income on 10 units of good x and 14 units of good y. fiona's marginal utility from the 10th unit of good x is 24 utils, and her marginal utility from the 14th unit of good y is 20 utils. if the price of good x is $8 per unit and the price of good y is $5 per unit, then to comply with the rational spending rule, fiona should:

Answer 1

Should have bought more units of x and less units of y as dollar utility per item x is 24 Ă— 8 / 10 = 19.2 while dollar utility per y is 20 Ă— 5 / 14 = 7.14, but they have to be equal, i.e., 192 Ă— y = 100 Ă— x