Question

Deriving demand from a marginal utility table with two goods Kyoko has a $25 cosmetics budget that she uses to buy nail polish and lipstick. Assume the price of nail polish (PN) is fixed at $5. Table A shows Kyoko's marginal utility (MU) and marginal utility per dollar (MUP) she receives from the first through fifth bottles of nail polish she buys each month. Table B shows the same information for lipstick when the price of a tube of lipstick (PL) is either $10 or $5. Assume that Kyoko is a rational consumer who wants to maximize her utility. Table A Nail Polish MU MU/P (Bottles) (Utils) (If P=5) 0 45 9 1 40 8 2 30 6 3 15 3 4 5 1 5 Table B Lipstick MU MU/P (Tubes) (Utils) (If P=$10) (If P=$5) 0 60 6 12 1 50 5 10 2 40 4 8 3 20 2 4 4 10 1 2 5 If the price of a tube of lipstick is $10, the price of a bottle of nail polish is $5, and Kyoko spends her entire budget of $25, she will choose to buy of nail polish and of lipstick. Now, suppose that lipstick goes on sale, and its price decreases to $5. Kyoko's utility is now maximized if she buys of nail polish and of lipstick. Suppose the price of nail polish is fixed at $5, and Kyoko's budget is fixed at $25. On the graph, use the blue line (circle symbols) to plot Kyoko's demand for lipstick. Do this by placing one blue point (circle symbol) on Kyoko's demand for lipstick when the price is $10 and the second blue point on Kyoko's demand for lipstick when the price is $5. Kyoko's Demand 0 1 2 3 4 5 6 15 10 5 0 PRICE (Dollars per tube) QUANTITY (Tubes of lipstick)

Answer 1