Question

At a consumer optimum involving goods $\mathrm{A}$and $\mathrm{B}$, the marginal utility of good $A$ is twice the marginal utility of good $B$. The price of good B is $\$3.50$. What is the price of good $A$?

Short answer

The Price of good $A$is equal to $\$7$, because the price of good $A$is twice of the price of good $B$.

Step-by-step solution

Introduction.

The satisfaction is derived an user buys from owning one more unit of a commodity or service is known as marginal utility.

Economists employ the notion of marginal utility to evaluate what kind of a product consumers are willing to buy.

Given data.

$\$3.50$is the cost of excellent $B$.The marginal utility of good $A$is two times that of good $B$. The price of good$A$is then two times that good$B$.

Explanation.

That is,$\$7(3.50times2=7)$

To solve terms the following formation is used.

$\frac{MUofgoodA}{PriceodgoodA}=\frac{MUofgoodB}{PriceofgoodB}$

$\frac{2muofB}{PriceofgoodA}=\frac{MUoggoodB}{3.50}$

$2B\times 3.50=BA$

$7B=BA$

$A=7$

Because the price of goods$A$is twice the price of goods$B$, the price of goods$A$equals$\$7.$