What combination of the two goods below allows you to maximize your utility with
ID: 1179596 • Letter: W
Question
What combination of the two goods below allows you to maximize your utility with a budget constraint of $14? Show how you arrived at your conclusion in the space provided below. Place your final answers on the lines at the bottom of this page.
PRICE = $0.50 per pint
Bottles of glue
Total Utility (Utils)
1
15
2
23
3
30
4
35
5
38
6
40.5
PRICE = $2.00 per box
Bales of hay
Total Utility (Utils)
1
10
2
22
3
36
4
52
5
70
6
90
Bottles of glue: _________________________
Bales of hay: ____________________________
Bottles of glue
Total Utility (Utils)
1
15
2
23
3
30
4
35
5
38
6
40.5
What combination of the two goods below allows you to maximize your utility with a budget constraint of $14? Show how you arrived at your conclusion in the space provided below. Place your final answers on the lines at the bottom of this page. PRICE = $0.50 per pint PRICE = $2.00 per box Bottles of glue: _________________________ Bales of hay: ____________________________Explanation / Answer
Bottles of glue:4
Bales of hay:6
With a budget of $14, we will go with 4 bottles of glue and 6 bales of hay.
THe approach is as follows.
For spending first 2 dollars, buying 4 bottles of glue has higher marginal utility than buying 1 bale of hay. 35>10.
We now have $12 remaining with us. So we spend $10 to buy 5 bales of hay, giving a marginal utility of 70.
Now for the last 2 $, we have two options, buy 2 bottles of glue giving a marginal utility of 5.5, or buy 1 bale of hay giving a marginal utility of 20. We will buy 2 bales of hay as it gives higher marginal utility. We dont buy the 5th bottle of glue even though it costs just %0.5 because buying it will leave us with insufficient funds to buy 6th bale of hay.
Hence answer is 4 bottles of glue and 6 bales of hay.
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