5)The table below shows Liz’s total utility (TU) from candy bars and potato chip
ID: 2429455 • Letter: 5
Question
5)The table below shows Liz’s total utility (TU) from candy bars and potato chips. Her budget is $4 per day. The price of a candy bar is $1.00 and the price of a bag of chips is $1.00. Candy Bars Potato Chips Q TU MU MU/P Q TU MU MU/P 0 0 4 22 1 10 3 19 2 19 2 15 3 27 1 8 4 29 0 0
a. Fill in the last two columns in each table. (Remember that the formula for marginal utility (MU) is: ?TU/?Q.)
b. What combination of candy bars and potato chips should she consume in order to maximize her total utility? Carefully explain.
Explanation / Answer
a)
b) Total utility is maximized where
MUcandy bar / Pcandy bar = MUpatato chips / Ppatato chips
It is seen from the table that (MU / P) are equal to 8, when Liz consumes 3 units of candy bar and 1 bag of chips.
Total expenditure = ($1 * 3) + ($1 * 1) = $4
Total Utility = 27 + 8 = 35
Thus, Liz should consume a combination of 3 units of candy bar and 1 bag of chips in order to maximize her total utility
Candy Bar Patato chips Q TU MU MU/P Q TU MU MU/P 0 0 4 22 3 3 1 10 10 10 3 19 4 4 2 19 9 9 2 15 7 7 3 27 8 8 1 8 8 8 4 29 2 2 0 0 0Related Questions
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