Referring to the diagram, answer the following question. Assume that the initial

Question

Referring to the diagram, answer the following question. Assume that the initial price of pizzas is 5 per unit and the initial price of soft drinks is 10 per unit, “B” is the utility maximizing combination of pizzas and cokes. a) What is money income (M)? b) For consumption bundle “A”, MU pizza/P pizza is _______ (greater than/less than/equal to) MU soft dink/P soft drink. Explain. c) Explain why “B” is the utility maximizing point at the initial prices? d) Indicate two (P,Q) combinations on the demand curve for soft drink

Explanation / Answer

a) The money inome is 1000.

b) Less than.

c) B is utility maximizing point at initial price because it is giving maximum satisfaction and the person is attaining maximum satisafaction after spending that amount of money .

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