Stella's marginal utility of the last unit of X consumed is 18 and her marginal utility of the last unit of Y consumed is 12.What prices for X and Y,respectively,are consistent with Stella being in consumer equilibrium?
A) $4 and $6
B) $12 and $18.
C) $15 and $15.
D) $12 and $8.

Question

Quizplus · Accepted Answer

The consumer equilibrium condition is that the marginal utility per dollar spent on each good must be equal. Let Px and Py be the prices of X and Y respectively. Then, we have:

MUx/Px = MUy/Py
18/Px = 12/Py
Py = 0.67 Px

To find the prices that satisfy this equation, we can try the answer choices.

For choice A, Px = $4 and Py = $6. Py/Px = 1.5, which is not equal to 0.67.

For choice B, Px = $12 and Py = $18. Py/Px = 1.5, which is still not equal to 0.67.

For choice C, Px = $15 and Py = $15. Py/Px = 1, which is not equal to 0.67.

For choice D, Px = $12 and Py = $8. Py/Px = 0.67, which satisfies the equation.

Therefore, the best choice is D.

Stella's Marginal Utility of the Last Unit of X Consumed