Question

Suppose you have a limited money income and you are purchasing products a and b whose prices happen to be the same. To maximize your utility you should purchase a and b in such amounts that: their marginal utilities are the same. Their total utilities are the same. Their marginal and total utilities are proportionate. The income and substitution effects associated with each are equal.

Answer 1

Answer: Their marginal utilities are the same.

Explanation:

Consumer optimum occurs at a point where the slope of the indifference curve is equal to the slope of the budget line. This is given by,

$\frac{MU_{A} }{MU_{B} } = \frac{P_{A} }{P_{B} }$

Since, price of a and b are equal.

$\frac{MU_{A} }{MU_{B} } = 1$

$MU_{A} = MU_{B}$

Thus, the two marginal utilities must be equal at the consumer optimum.