Question

QUESTION 17

Exhibit 6-2

Total Utility from Hamburgers	Total Utility from Fries	Total Utility from Cokes
1 hamburger (100 utils)	1 order of fries (30 utils)	1 Coke (40 utils)
2 hamburgers (180 utils)	2 orders of fries (50 utils)	2 Cokes (60 utils)
3 hamburgers (240 utils)	3 orders of fries (60 utils)	3 Cokes (70 utils)

Consider Exhibit 6-2. What is the marginal utility of having a second order of fries?

a. 10 utils.

b. 20 utils.

c. 30 utils.

d. 50 utils.

QUESTION 18

1. Table 1: Mark’s Utility Information from Ice Cream and Pizza. Budget: $9.

   Ice Cream (Scoops) (P=$1)		Pizza (slices) (P=$2)
   Quantity	MU from Ice Cream	Quantity	MU from Pizza
   1	20	1	24
   2	15	2	22
   3	10	3	20
   4	5	4	18
   5	0	5	16
   6	-5	6	14

   See Table 1. Mark is a rational consumer. He wants to maximize his total utility. With a budget $9, how does his consumption look like?

   		He will buy 2 scoops of ice cream and 1 slice of pizza, saving $5.
   		He will buy 4 scoop of ice cream and 4 slices of pizza, depleting his budget.
   		He will buy 3 scoops of ice cream and 3 slices of pizza, depleting his budget.
   		He will buy 2 scoops of ice cream and 2 slices of pizza, saving $3.

QUESTION 19

1. Table 1: Mark’s Utility Information from Ice Cream and Pizza. Budget: $9.

   Ice Cream (Scoops) (P=$1)		Pizza (slices) (P=$2)
   Quantity	MU from Ice Cream	Quantity	MU from Pizza
   1	20	1	24
   2	15	2	22
   3	10	3	20
   4	5	4	18
   5	0	5	16
   6	-5	6	14

   Continue with the scenario. What is the total utility that Mark achieve?

   		111.
   		134.
   		78.
   		92.

Answer 1

17.Ans: b) 20 utils

Explanation:

Marginal utility = Change in total utility / Change in Quantity = ∆ TU / ∆Q

The marginal utility of having a second order of fries = ( 50 - 30 ) / ( 2- 1) = 20 / 1 = 20 utils

18.Ans: He will buy 3 scoops of ice cream and 3 slices of pizza, depleting his budget.

Explanation:

Utility maximization condition is where ;

Entire given money outlay must be spent on both the goods.

MU_{Ice cream} / P_{Ice cream} = MU_Pizza / P_Pizza

Budget constraint;

Y = P_{Ice cream} * Q_{Ice cream} + P_Pizza * Q_Pizza

$9 = ( $1 * 3 ) + ( $2 * 3 )

Quantity	MU from Ice Cream	MU/P	Quantity	MU from Pizza	MU/P
1	20	20	1	24	12
2	15	15	2	22	11
3	10	10	3	20	10
4	5	5	4	18	9
5	0	0	5	16	8
6	-5	-5	6	14	7

19.Ans: 111

Explanation:

Total utility at utility maximizing combination;

= 45 + 66

= 111

Quantity	MU from Ice Cream	MU/P	Total utility	Quantity	MU from Pizza	MU/P	Total utility
1	20	20	20	1	24	12	24
2	15	15	35	2	22	11	46
3	10	10	45	3	20	10	66
4	5	5	50	4	18	9	84
5	0	0	50	5	16	8	100
6	-5	-5	45	6	14	7	114