If the marginal utility of the last unit commodity \(\mathrm{X}\) at \(\mathrm{N} 2\) is 16 and that of commodity \(\mathrm{Y}\) at \(\mathrm{N} 4\) is 24 , the consumer will be at equilibrium when ____________
A. the price-quantity ratios are equal B. equal amounts of \(X\) and Yare consumed C. less of \(\mathrm{Y}\) and more of \(\mathrm{X}\) are consumed D. less of \(\mathrm{X}\) and more of \(Y\) are consumed
Correct Answer: C
Explanation
The condition for utility maximization is $$ \frac{M U_{1}}{P_{1}}=\frac{M U_{1}}{P_{1}} $$ If they are not equal, the consumer is not at equilibrium. Given the marginal utility and the price of \(x\) and \(y\) \(=\frac{16}{2}>\frac{24}{4}\) Therefore, the consumer should consume more of \(x\) to make the MU of \(x\) fall.
