Chapter EMD, Problem 5MCQ

To determine

To state: The point where the optimum consumption bundle is found.

Answer to Problem 5MCQ

The correct option is B i.e the slope of the indifference curve equals the slope of the budget line.

Explanation of Solution

The optimal consumption bundle is known as the utility maximization and the optimal consumption bundle is found at a point where the MU, i.e., marginal utility per dollar (that is the MU divided by price) of each good is equal.

That is,

  $\begin{array}{l}\frac{{\text{MU}}_{\text{x}}}{{\text{P}}_{\text{x}}}\text{=}\frac{{\text{MU}}_{\text{y}}}{{\text{P}}_{\text{y}}}\\ \begin{array}{l}\text{P = price}\hfill \\ \text{X= Good X}\hfill \\ \text{Y= Good Y}\hfill \\ {\text{MU}}_{\text{x}}\text{= Marginal utility of good X}\hfill \\ {\text{MU}}_{\text{y}}\text{= Marginal utility of good Y}\hfill \end{array}\end{array}$

Economics Concept Introduction

Introduction:

The optimal consumption bundle rule states that when a consumer maximizes utility, the marginal utility per dollar consumed should be alike for all services and goods in the consumption bundle.