John gets a weekly allowance of $20 from his parents. The only thing he has a real interest in buying is a big slice of
John gets a weekly allowance of $20 from his parents. The only thing he has a real interest in buying is a big slice of pizza after school for $2 per slice. Below shows his marginal utility for each slice consumed. Number of Pizza Slices [given] Marginal Utility per Pizza Slice [given] 20 12 10 Marginal Utility Per Funnel Cake 50 40 32 20 =12 MU per $ MU per $ (Pizza) (cake) [my work for | [my work for Question C] Question C] 10 12.5 6 10 =) 8 3 5 i 3 0 0 -3 a) What is the optimal quantity of pizza slices for John to buy? Explain. (For now, completely ignore the funnel cake column.) John has $20 and each pizza slice costs $2, so he can afford up to 10 slices if we're totally disregarding the funnel cake. The ideal amount for John to buy is 5 slices because the MU for each slice goes down and reaches zero after the 5th slice. More than 6 slices into his meal? The MU is a food poisoning zero or negative- basically, more slices wouldn't just not give him satisfaction, but contrariwise, disgust. b) If John purchased eight slices, what total utility would he enjoy? The sum of 20, 12,10,6,2,0, minus 2, minus 8 comes out to be 42. If he bought 8 slices of pizza the total utility he'd get from it is 42. ) The school starts selling funnel cakes for $4, which John discovers offers the marginal utility per cake shown on the same table. Complete a table that shows the marginal utility per dollar for each slice of pizza and each funnel cake (in separate columns). d) Assuming John's parents do not allow him to use any savings, what is his optimal consumption bundle of pizza and funnel cakes? Explain. John's ideal intake of pizza and funnel cake would be 5 slices of pizza and 12 funnel cakes since the total amount that John would be able to spend is $20 bucks e) At John's optimal consumption bundle, what total utility will he gain? 20+12+50+40+32+20 = 32 + 142 = 174 At John's optimal consumption bundle, the total utility he will gain is $174
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