uestion (o points) Maria has a weekly allowance of S10, all of which she spends

Question

uestion (o points) Maria has a weekly allowance of S10, all of which she spends on newspapers (N) and magazines (M), whose respective prices are Pv- 1 and PM 2. Her utility from these purchases is given by u(N, M)(N)+w(M) The values of v(N) and w(M) are given in the table below. Is Maria a utility maximizer if she buys 2 newspapers and 4 magazines each week? If yes, explain why. If no, how should she spend her allowance? Hint: Remember the equal marginal principle. 1 121 20 2 20 2 32 3 263 40 4304 44 5 32 5 4

Explanation / Answer

Possible Utility Bundles = (0,5), (2,4) , (4,3)

Using Trial and Error

U/(0,5) = 46

U(2,4) = 64

U(4,3) = 70

Hence (4,3) provides the highest utility as can be seen above.

By law of equimarginal principle, MUx/MUy = Px/Py

In this case too, 4/8 = 1/2

If it was (2,4), it would have been 8/14 which is not equal to 1/2(px/py)

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