Question

Consider an individual whose utility function is U = X⁰·⁵Y⁰·⁵. If the individual consumes 1 unit of X and 4 units of Y, then she will experience some level of utility. If the individual instead consumes 2 units of Y, how much of good X must she consume in order to attain the level of utility associated with 1 unit of X and 4 units of Y?

Answer 1

To determine how much of good X must be consumed to attain the same level of utility associated with 1 unit of X and 4 units of Y, we can use the concept of marginal utility.

Step-by-step explanation:

To find out how much of good X must be consumed in order to attain the level of utility associated with 1 unit of X and 4 units of Y, we can use the concept of marginal utility. The individual's utility function is U = X⁰·⁵Y⁰·⁵. We know that utility is subjective and that, in this case, consuming additional goods leads to greater total utility, but at a decreasing rate (diminishing marginal utility). So if the individual consumes 1 unit of X and 4 units of Y and experiences a certain level of utility, we can find the marginal utility of X at this consumption level. Then, when the individual consumes 2 units of Y and wants to attain the same level of utility associated with 1 unit of X and 4 units of Y, we can use the marginal utility of X to determine how much of good X must be consumed.