Question
Aiden allocates his income to biscotti and cappuccini. The accompanying table shows his utility from the quantity of biscotti or the quantity of cappuccino. Aiden
Aiden allocates his income to biscotti and cappuccini. The accompanying table shows his utility from the quantity of biscotti or the quantity of cappuccino.
Aiden has $14 per week to spend on biscotti and cappuccini. The price of a biscotto is $2 and the price of a cappuccino is $2.
a. Which bundles of biscotti and cappuccini can Aiden consume per week? Draw Aiden's budget line in a diagram with biscotti on the horizontal axis and cappuccini on the vertical axis.
b. Calculate the marginal utility of each biscotto and the marginal utility of each cappuccino. Then calculate the marginal utility per dollar spent on biscotti and the marginal utility per dollar spent on cappuccini.
c. What is Aiden's optimal consumption bundle? Find this bundle by checking the optimal consumption rule.
d. What is the bundle that maximizes Aiden's total utility from biscotti and cappuccini? How does this compare with your answer in (c)?
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