Answer:
4. should consume less of X and more of Y.
Explanation:
Marginal Utility is defined as the satisfaction that an individual gains after consuming additional units of a certain goods or services.
In the given scenario there are two products X and Y. The price of X is higher than Y. The product X takes more time to consume than of product Y. The consumer should make a combination to maximize its marginal utility. The time to consume a unit worth $2 per hour therefore the consumer should focus consuming more of Y and less of X to save its time to consume the unit which will result in maximizing its marginal utility.
Answer: The answer is that you should consume less of X and more of Y.
Explanation: From the scenario presented above, we see that X gives 40 utils and it costs $8. Y gives 20 utils and it costs $4.
But since it takes 3 hours to consume X, and just 1 hour to consume Y, bearing in mind that 1 hour is equivalent to $2, then an additional $6 cost is incurred in consuming X, while an additional $2 cost is incurred in consuming Y.
Therefore the total cost incurred in consuming X and Y are:
X = $14
Y = $6
In order to determine the correct consumption combination, we will have to calculate the utility per dollar spent on each product thus:
Utility per dollar spent on X = 40/14
= 2.86
Utility per dollar spent on Y = 20/6
= 3.33
From the calculations above, we can see that more utility is derived from consuming Y than from consuming X.
Therefore, less of X should be consumed and more of Y should be consumed.
