Question

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?

Answer 1

	ICE CREAM			ROMANCE NOVELS
Quantity	TU	MU	MU Per $	TU	MU	MU per $
1	95	95	19	170	170	17
2	180	85	17	320	150	15
3	255	75	15	450	130	13
4	320	65	13	560	110	11
5	375	55	11	650	90	9
6	420	45	9	720	70	7
Note: MU per $ of each product is computed by dividing the MU by price of respective goods
Req A
MU for 4th unit of Romance Novels is 110
Req B:
Case-1: Budget $50, Ice cream purchased 2 units
Total Budget:			50
Less: Amount spent on Ice-cream			10
Amount to be spent on Novels			40
Divide: price per unit			10
Units to be purchased of Novels			4 units
Case-2
Total Budget:			50
Less: Amount spent on Ice-cream			30
Amount to be spent on Novels			20
Divide: price per unit			10
Units to be purchased of Novels			2
Marginal utility per $ from 2nd unit of Novel: 15 per $
Req C:
Case-1 4 ice cream and 3 Novels
Total utility of 4 units of ice cream				320
Add: Total utility from 3 units of Novels				450
Total utlity				770
Case-2 Ga ice cream and 2 units of Novels
Total utility of 6 units of ice cream				420
Add: Total utility from 2 units of Novels				320
Total utlity				740
Hence, 4 ice-cream and 3 Novels is better option.