Economics 1220 Section WOl Fall 2021 Utility Worksheet Class Assignment Week 6 Drawn from: Avi J Cohen and Harvey B King. Microeconomics. Canada in the Global Economy, Study Guide, Fifth Edition, Pearson Addison Wesley, 2003 Tables 1 and 2 give Amy's utility from the consumption of popcorn and candy bars during a week Table 1 Bags of Popcorn | Total Utility | Marginal Utility 0 0 20 20 36 16 3 50 14 4 67 12 5 72 10 6 80 The marginal utility from the fourth bag of popcorn is 12. Table 2 Number of Candy Bars | Total Utility| Marginal Utility 0 0 1 14 14 26 12 36 10 44 8 51 6 57 The marginal utility from the third candy bar is 10 1) Complete table 1 and table 2 above, filling in the total and marginal utility amounts. Remember that the marginal utility belongs between the consumption amounts. 2) Suppose the price of a bag of popcorn is $1, and the price of a candy bar is $0.50. Given the information in Tables 1 and 2, complete Table 3 below, where MU/P means marginal utility divided by price, which is equivalent to marginal utility per dollar spent. Table 3 Bags of Popcom| MU/P| Number of Candy Bars | MU/P 20 1 28 2 16 2 24 3 14 3 20 12 4 16 5 10 5 14 6 8 6 12Amy's weekly allowance is $4. Using your answers above, calculate the following, assuming she spends all of her allowance on candy bars and popcorn 3) To maximize her utility, how many bags of popcorn and how many candy bars will she consume per week? Amy will maximize her utility by consuming 2 bags of Popcorns and 4 Candy bars. 4) What is the general economic formula for the utility maximization condition? To maximize the utility, marginal utility per dollar for two or more goods must be equal. 5) Show that the utility maximization condition holds (is satisfied) for the amount of candy and popcorn that she chooses (your answer from Q3). 16 6) What is her total utility from choosing the combination of candy and popcorn you described in Q3? 80 7) If instead Amy spends all of her allowance on popcorn, calculate her total utility from this allocation of her allowance (income). 62 8) Suppose that Amy's preferences remain as above, but the price of a candy bar doubles to $1. Fill in Table 4 below, using the new price of candy bars. Table 4 Bags of Popcom | MU/P|Number of Candy Bars | MU/P 1 3 14 5 6 6 9) How many candy bars and bags of popcorn does she now choose to maximize her utility? 10) Think about what happened to the price of a candy bar, and what happened to her consumption of popcorn. Are candy bars and popcorn substitutes or complements for Amy? How do you know? 11) Using the prices of candy bars, and the amount she consumed at each price, draw her demand curve for candy bars (it will be a "curve" based on two points) 2