Question

Ellie is spending her entire income on goods X and Y. Her marginal utility from the last unit of X is 100 and the marginal utility from the last unit of Y that she consumes is 50. ​Ellie's utility is only maximized if

Answer 1

The price of good X is twice the price of good Y

Step-by-step explanation:

Utility can be defined as the amount of satisfaction that one can derive from consuming a product.

Marginal utility is the additional utility derived from consuming an extra unit of a product.

Total Utility is the total satisfaction one derives from consuming all units of a product.

Because consumers are rational and they want to spend the least amount to get maximum utility, they are at equilibrium at the point where Marginal Utility of product X divided Price of X is equal to the Marginal Utility of product Y divided by Price of Y.

So for utility to be maximized it means that the price of good X has to be twice the price of good Y.