Scenario 1 Consider the following problem to help reinforce the understanding of determining Maximum Utility when a consumer is restricted by a budget Suppose the consumer has a total budget of $26.00 for pizza and soda as the choice for dinner. You must determine how to combine the consumer choices that is, how many slices of pizza and how glasses of soda are to be consumed to give the consumer the maximum utility for the money ($26.00) they will be spending. Observe Table 1 on next page. Using the formula given Marginal Utility/Price for Pizza and the Marginal Utility/Price for a glass of soda begin determining the MU/P for each successive slice of Pizza and the MU/P for each successive glass of Soda. Once you have completed the MU/P for each answer work through the possible combinations while remaining within the budget of $26.00. The consumer MUST spend their entire budget; there can be no money left over. You have been given both the Marginal Utility for both items in the table; you need to determine (MU/P) for each item. Use Table 1 to complete your work. Q1: What is the best combination of slices of pizza and glasses of soda using MU/P that will give the consumer the Maximum Total Utility but not exceed their budget? Remember the consumer must spend their entire budget. Slices of Pizza: Glasses of Soda: Q2: After determining what the best combination is; what is the Maximum Total Utility (MU/P) the consumer gets by combining all items and not exceeding their budget of $26.00? Page 36 |