Question

Suppose, price of commodity-Y ($P_Y$) is Rs. $10$ per unit. Also, assume that marginal utility of money $\left(M{U}_m\right)$ is $8$ (and constant). Using the following marginal utility schedule of the consumer, find out equilibrium level of consumption and total expenditure on commodity-Y

Units Consumed	$1$	$2$	$3$	$4$	$5$	$6$
Marginal Utility	$170$	$130$	$110$	$80$	$30$	$0$

Answer 1

$P_Y=10$ and ${MU}_M=8$

At equilibrium, $\frac{{\text{MU}}_Y}{{\text{P}}_Y}$ $={MU}_M$

Or, $\frac{{\text{MU}}_Y}{10}$$=8$

Or, ${MU}_Y$ $=8\times 10=80$

Implying that the consumer finds his equilibrium when he consumes four units of the commodity-Y.

Total expenditure on commodity-Y at equilibrium level $=4\times 10=40$.