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	8	6	4	6
2	15	11	7	5	3.5	5
3	21	15	6	4	3	4
4	26	18	5	3	2.5	3
5	30	20	4	2	2	2
6	33	21	3	1	1.5	1

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

We have the below information. Columns have been added to the table:

Q	TUB	TUP	MUB	MUP	0.5MUB	MUP/1	MU
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	0.5

we have, Income, M = 10, PP = 1 and PB = 2

New PP = 2 and New Income M = 16

We know that the entire budget will be exhausted at utility maximizing bundle and following condition must hold:

MUB/PB = MUP/PP

When the Quantity of B = 5 and Quantity of P = 3

then MUB/PB = MUP/New PP

MUB/2 = MUP/2 ....entire budget is exhausted at this bundle.

Consumer will purchase 5 units of Beer and 3 units of Pizza to maximize utility.

Total Spending by consumer = 2*5 + 2*3 = $16

Total Utility = 30 + 15 = 45

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