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26 June, 14:14

Suppose that MUX = Y and MUY = X. The prices of good X and good Y are $5 and $4, respectively. How many units of good X does the consumer buy if she has $410 of income?

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  1. 26 June, 14:32
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    She consumes 41 units of good X.

    Explanation:

    Utility Maximization:

    The maximum utility that a consumer derives from the use of a specified amount of a good or service.

    Consumer M aximise the utility when following condition is satisfied.

    MUx / MUy = Px / Py

    Y / X = 5 / 4

    4Y = 5X

    According to given sitation the budget constraint is

    Px (X) + Py (Y) = M

    5X + 4Y = 410

    Using 4Y = 5X

    thus, 5X + 4Y = 410

    5X + 5X = 410

    10X = $410

    X = 41.
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