Question

MICROECONOMICS

1. Fill in the following table, graph marginal and total utility of pizza and the total and marginal utility of beer and answer the following questions:

Quantity Of beers	Total Utility Of beer	Marginal Utility of beer	Number of slices of pizzas	Total utility of pizza	Marginal utility of pizza
0	0	--------	0	0	---------
1		36	1	20
2		24	2	38
3		18	3	54
4	93		4		14
5	99		5		12
6	94		6		0

1. If you have a budget of $10 and the pizza and beers cost $2 each, what is the consumer optimum?

2. What if the price of beer increases to $3, but the price of pizza remains the same and your budget goes up to $12?

Answer 1

Q(BEERS)	TU	MU	MU/P	Q(PIZZAS)	TU	MU	MU/P
0	0			0	0
1	36	36	18	1	20	20	10
2	60	24	12	2	38	18	9
3	78	18	9	3	54	16	8
4	93	15	7.5	4	68	14	7
5	99	6	3	5	80	12	6
6	94	-5	-2.5	6	80	0	0

Graph of Beer:-

Graph of Pizza:-

a) the optimum consumption occurs where MU/P for both goods are equal to one other

= 3 units of Beers and 2 units of Pizzas

b) When the price of beer increases to 3 and budget = 12

Q(BEERS)	TU	MU	MU/P	Q(PIZZAS)	TU	MU	MU/P
0	0			0	0
1	36	36	12	1	20	20	10
2	60	24	8	2	38	18	9
3	78	18	6	3	54	16	8
4	93	15	5	4	68	14	7
5	99	6	2	5	80	12	6
6	94	-5	-1.66667	6	80	0	0

Consumption = 2 units of beer and 3 units of Pizza