Question

The marginal utility of the last unit of apples consumed is 12, and the marginal utility of the last unit of bananas consumed is 8. What set of prices for apples and bananas, respectively, would be consistent with consumer equilibrium?

Answer 1

Answer:

The price of these two goods can be $1.5 and $1, or $3 and $2, or $6 and $4, and so on.

Explanation:

Suppose a consumer purchases two goods apples and bananas.

The marginal utility of the last unit of apples consumed is 12.

While the marginal utility of the last unit of bananas consumed is 8.

For consumer equilibrium, the price of these two goods should be such that the ratio of marginal utility and price for both the goods are equal.

Lets assume the price of apples is x and the price of bananas is y.

$\frac{MUx}{Px} = \frac{MUy}{Py}$

$\frac{12}{x}= \frac{8}{y}$

12y = 8x

x = $\frac{12y}{8}$

x = 1.5y

So the price of these two goods can be $1.5 and $1, or $3 and $2, or $6 and $4, and so on.