Question

Quantity	Total Utility for Beer	Total Utility for Pizza	Marginal Utility for Beer	Marginal Utility for Pizza	Marginal Utility per $ for Beer (a)	Marginal Utility per $ for Pizza (a)	Marginal Utility per $ for Pizza (b)
0	0	0	—	---
1	8	6
2	15	11
3	21	15
4	26	18
5	30	20
6	33	21

On Tuesday night you have $10, and head to Vitos after another arduous Economics exam. A slice of pizza is $1, and the price of a pint beer is $2.00 (Natty Bo). Complete the table up to the last column. Suppose you go back to Vito’s the following week, but the price of a slice of pizza is now $2. The price of a pint of beer is still $2. Fortunately, you have $16 to spend. Complete the last column in the table. How many slices of pizza and pints of beer will you buy in order to maximize your utility? What is your total utility from both pizza and beer?

Answer 1

Table

Q	TUB	TUP	MUB	MUP	MUB/2	MUP/1	MUP/2
0	0	0	-	-	-	-	-
1	8	6	8	6	4	6	3
2	15	11	7	5	3.5	5	2.5
3	21	15	6	4	3	4	2
4	26	18	5	3	2.5	3	1.5
5	30	20	4	2	2	2	1
6	33	21	3	1	1.5	1	.5

Budget M = 10,

PP = 1, PB= 2,

PP'= 2, M'= 16

At Utility Maximization,total budget is exhausted

& MUB/PB = MUP/PP

When Beer = 5, & Pizza = 3,

Then MUB/PB= MUP/PP'

MUB/2= MUP/2

& Also entire budget is exhausted.

Total spending = 2*5+2*3= 16

.

Total utility = 30+15

= 45