Question

****PLEASE ANSWER ASAP**** PLEASE SHOW WORK

You want to maximize your utility and find your consumer optimum.

Here is a table of your current situation:

Taco Bell drink: $1.00

Taco Bell burrito supreme: $5.00

Income: $11.00

Drink    Total Utility                               Burrito supreme                        Total Utility

0            0                                                       0                                                0

1             100                                                 1                                                           600

2             220                                               2                                                          1100

3             280                                                 3                                                         1500

4             330                                                 4                                                         1600

5            350                                                  5                                                         1650

Calculate the Marginal Utility then the MU/P to find Consumer Optimum.

How many drink(s) and burrito supreme(s) should you purchase to reach consumer optimum?

I got 1 drink 2 burritos but I'm not positive its correct Please explain if I am correct also

Answer 1

A utility maximising consumer will spend his income on different commodities in such a way that the marginal utility of each good is proportional to its price.Thus, a consumer will be in equilibrium while purchasing two commodities when MUX/PX = MUY/PY

where MUX/PX  is marginal utility of a unit of money spent on commodity X. MUY/PY is marginal utility of a unit of money spent on commodity Y.

Drinks-

Drink	Total Utility	Marginal Utility	MU/P
0	0	-	-
1	100	100	100
2	220	120	120
3	280	60	60
4	330	50	50
5	350	20	20

Burrito supreme-

Burrito supreme-	Total utility	Marginal utility	MU/P
0	0	-	-
1	600	600	120
2	1100	500	100
3	1500	400	80
4	1600	100	20
5	1650	50	10

Marginal utility is the additional utility derived from the consumption of an extra/ additional unit of commodity.It is calculated as- Marginal utility of nth unit= total utility of nth unit - total utility of (n-1)th unit.

In the above table we can see that the marginal utility per rupee spent on each commodity diminishes. This is because as we consume more of goods, marginal utility derived from additional units consumed declines.

Marginal utility per rupee(MU/P) will be helpful to consumer in determining the amount of each good that will maximise his utility. A utility maximising consumer will be in equilibrium when MUX/PX = MUY/PY.  From this rule, we can see from the table 1 unit of drink and 2 unit of burritos have equal MU/P i.e., 1 unit of drink has MU/P=100 and 2 unit of burritos has MU/P=100.Similarly 2 unit of drink and 1 unit of burritos have equal MU/P. Similarly 5 unit of drink and 4 unit of burritos have equal MU/P .These combinations will maximise his utility.

In order to purchase these, the consumer will incur expenditure on them-

combination	total expenditure
1 unit of drink + 2 unit of burrito	1 x $1 + 2 x $5= $1+$10= $11
2 unit of drink + 1 unit of burrito	2 x $1 + 1 x $5 = $2+$5=$7
5 unit of drink + 4 unit of burrito	5 x $1 + 4 x$5= $5+$20= $25

Hence from the above table we can see that when the consumer 1 unit of drink and 2 unit of burrito , the consumer will be able to spend $11. Thus the consumer will be in equilibrium when he purchases 1 unit of drink and 2 unit of burritos.

If the consumer purchases 2 unit of drink and 1 unit of burrito he will be able to spend only $7. If the consumer purchases 5 unit of drink and 4 unit of burrito he will spend $25 which are out of his reach. In both these cases utility wouldn't be maximised .It is only when he purchases 1 unit of drink and 2 unit of burrito, consumer maximises his utility.