This is the second time I post these questions!! So please I NEED THE ANSWERS CO
ID: 2441034 • Letter: T
Question
This is the second time I post these questions!! So please I NEED THE ANSWERS COPMUTER TYPED SO I CAN READ IT AND PLEASE PROVIDE THEM WITH ECONOMIC EXPLANATION FOR EACH STEP!!! Quantity of Total Utty Bubble Tea Quantity ootal Ulity Pita Wraps 60 102 132 144 144 138 128 40 70 91 106 112 115 115 4 4 Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is S6 and the price of a glass of Bubble Tea is $3. The table above shows his total utility from different quantities of the two items a) What is Keegan's optimal consumption bundle? b) What is Keegan's marginal utility per dollar spent on the third pita wrap? c) If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume?Explanation / Answer
1.
A.
Keegen will buy its optimal consumption bundle on the basis of marginal utility per unit of dollar spent. The income will be spent first upon that product, that will offers the highest MU per dollar. Afterwards, the income will be spent upon the product with second highest MU per dollar. The process will continue, till the income is exhausted.
Amount to be spent = $30
On this basis,
The first product to be purchased is bubble tea, second purchase is Pita wrap and third purchase is bubble tea. The fourth purchase is bubble tea and fifth purchase is Pita wraps. Sixth unit of purchase is Pita wraps and seventh unit of purchase is bubble tea.
Now, at this level whole $30 is exhausted.
Total amount spent = 3 units of pita wraps *6 + 4 units of bubble tea*3 = $30
It is also vindicated by the equi-marginal principle as third unit of pita wraps gives the same MU per dollar as of 4rth units of bubble tea.
So optimal consumption bundle will have 3 units of pita wraps and + 4 units of bubble tea.
B.
It is 5 as MU per dollar spent for the third unit of Pita wraps.
C.
6 units, as the MU drawn up to 6th unit will be positive.
2.
As per the equal marginal utility principle,
MU of jeans / price of jeans = Marginal utility of shirt / price of shirt
100/25 = Marginal utility of shirt/20
Marginal utility of shirt (last shirt) = 80
Quantity of Pita Wraps Total utility MU of Pita MU of Pita per dollar Quantity of bubble tea Total utility MU of bubble tea MU of bubble tea per dollar 1 60 60 10.00 1 40 40 13.33 2 102 42 7.00 2 70 30 10.00 3 132 30 5.00 3 91 21 7.00 4 144 12 2.00 4 106 15 5.00 5 144 0 0.00 5 112 6 2.00 6 138 -6 -1.00 6 115 3 1.00 7 128 -10 -1.67 7 115 0 0.00Related Questions
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