Question

Please show the work, I have looked at this problem a couple of different ways and can't figure out how the answer comes to be.

Daniel allocates his budget of $24 per week among three goods. Use the following table of the marginal utilities for Good A, Good B, and Good C to answer the questions below QA MUA QB MUB QC MUC 1 50 1 75 1 25 2 40 2 60 2 20 3 30 3 40 3 15 4 20 4 30 4 10 5 15 5 20 5 7.5

Qa	MUa	Qb	MUb	Qc	MUc
1	50	1	75	1	25
2	40	2	60	2	20
3	30	3	40	3	15
4	20	4	30	4	10
5	15	5	20	5	7.5

a. If the price of A is $2, the price of B is $3, and the price of C is $1, how much of each does Daniel purchase in equilibrium? SHOW YOUR CALCULATIONS!

b. If the price of A rises to $4 while the other prices and Daniel’s budget remain unchanged, how much of each does he purchase in equilibrium?

Answer 1

a ) Ans: Daniel purchases 4 units of Good A , 4 units of Good B and 4 units Good C.

Explanation:

Equilibrium condition is where ;

MUa / Pa = MUb / Pb = MUc / Pc

And entire budget or given money income must be spend.

Y = Pa * Qa + Pb * Qb + Pc * Qc

$24 = $2* 4 + $3 * 4 + $1 * 4

Qa	MUa	MUa / Pa	Qb	Mub	MUb / Pb	Qc	MUc	MUc / Pc
1	50	25	1	75	25	1	25	25
2	40	20	2	60	20	2	20	20
3	30	15	3	40	13.33	3	15	15
4	20	10	4	30	10	4	10	10
5	15	7.5	5	20	6.67	5	7.5	7.5

b ) Ans: Daniel purchases 2 units of Good A , 4 units of Good B and 4 units Good C.

Explanation:

Equilibrium condition is where ;

MUa / Pa = MUb/ Pb = MUc / Pc

And entire budget or given money income must be spend.

Y = Pa * Qa + Pb * Qb + Pc * Qc

$24 = $4* 2 + $3 * 4 + $1 * 4

Qa	MUa	MUa / Pa	Qb	MUb	MUb / Pb	Qc	MUc	MUc / Pc
1	50	12.5	1	75	25	1	25	25
2	40	10	2	60	20	2	20	20
3	30	7.5	3	40	13.33	3	15	15
4	20	5	4	30	10	4	10	10
5	15	3.75	5	20	6.67	5	7.5	7.5