Ice cream Romance novels
| Quantity | Total utility | Quantity | Total utility |
| 1 | 95 | 1 | 170 |
| 2 | 180 | 2 | 320 |
| 3 | 255 | 3 | 450 |
| 4 | 320 | 4 | 560 |
| 5 | 375 | 5 | 650 |
| 6 | 420 | 6 | 720 |
The table above shows Danielle's utility from ice cream and romance
novels.
a) What is Danielle's marginal utility from the 4th novel?
b) The price of ice cream is $5 per gallon and a novel is $10. If
Danielle's budget for these two goods is $50 and she buys 2 gallons
of ice cream, how many novels can she buy? If she buys 6 gallons of
ice cream, what is her marginal utility per dollar spent on
novels?
c) Which combination of the two goods is better: 4 gallons of ice
cream and 3 novels or 6 gallons of ice cream and 2 novels?
Marginal utility (nth unit) = Total utility (n units) - Total utility ((n-1) units)
a) MU (4th novel) = 560 - 450 = 110
b) budget constraint: 5I + 10N = 50
When I = 2, then N = (50 - 2 x 5)/10 = 4 (novels)
When I = 6
N = (50 - 6 x 5)/10 = 2 novels
MU (2nd novel) = 320 - 170 = 150
MU/P = 150/10 = 15
c) TU (4 gallons of ice cream and 3 novels) = 320 + 450 = 770
TU (6 gallons of ice cream and 2 novels) = 420 + 320 = 740
Therefore, the first combination of 4 gallons of ice cream and 3 novels is better. (Higher total utility)
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