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1. Suppose the marginal utility of good A is 20 and its price is \$4, and the marginal utility of good B is 50 and its price is \$5. The individual to whom this information applies is spending \$20 on each good. Is he or she maximizing satisfaction? If not, what should the individual do to increase total satisfaction? On the basis of this information, can you pick an optimum combination? Why or why not?
2. John and Marie settle down to watch the evening news. Marie is content to watch the entire program, while John continually switches channels in favor of possible alternatives. Draw the likely marginal utility curves for watching the evening news for the two individuals. Whose marginal utility curve is likely to be steeper?
1.Given that the individuals marginal utility from consuming 5 units of good A is 20. Hence, the marginal utility of 1 unit of good A is 4. The marginal utility from consuming 4 units of good B is 50. Hence, the marginal utility of 1 unit of good B is 12.5 The individual is maximizing satisfaction when the ratio of the two marginal utilities equals the price ratio. The ratio of the two marginal utilities is 0.4 while the price ratio is 0.8. Hence, individual is not maximizing utility. 2….

n and Marie settle down to watch the evening news. Marie is content to watch the entire program, while John continually switches channels in favor of possible alternatives. The likely marginal utility curves for watching the evening news for the two individuals are drawn below. Marginal utility curve is likely to be steeper for John.

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