Wize AP Microeconomics Textbook > Theory of Consumer Choice
Optimal Bundle (Utility Maximization)
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Optimal Bundle (MUx/Px = MUy/Py)
The optimal bundle is also called utility maximization and it is the point where the marginal utility per dollar (which is the marginal utility divided by the price) of each good is the same.
Example:
If the price of good X is $10 and its marginal utility is 100 while the price of Y is $20, then the marginal utility of Y must be
200
at utility maximization.
If the marginal utility of Y was 300 then you should consume more units of good Y
and less units of good X
.If we take the formula from above and rearrange it we would get the formula below which tells us the exact same thing.
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Example: Optimal Bundle (MUx/Px = MUy/Py)
The price of apples is $1.50 and the price of peaches are $2.50. Mark gets a marginal utility of 30 from his last apple and a marginal utility of 40 from his last peach consumed. Based on this information, how should he change his consumption of the two fruits?
A) consume more peaches
B) consume more apples
C) do not change consumption as he is at his optimal consumption bundle
D) cannot be determined
B.
MUa/Pa = 30/1.5 = 20
MUp/Pp = 40/2.5 = 16
Since 20 > 16 he should always get more of the bigger number so consume more apples. It's giving him more happiness per dollar.