Question
Suppose that as a consumer you have $34 per month to spend on munchieseither pizzas, which cost $6 each, or Twinkies, which cost $4 each.Suppose
Suppose that as a consumer you have $34 per month to spend on munchieseither pizzas, which cost $6 each, or Twinkies, which cost $4 each.Suppose further that your preferences are given by the following total utility table.
- Copy the tables below to submit and solve for the missing marginal utility information in each. Remember that they must show diminishing marginal utility as more of each product is consumed.
- Graph the budget constraint with Pizzas on the horizontal axis and Twinkies on the vertical axis. What are the intercepts?
# of Pizzas
1
2
3
4
5
6
7
Marginal Utility
?
?
?
?
?
?
?
Total Utility
60
108
138
156
162
166
166
# of Twinkies
1
2
3
4
5
6
7
Marginal Utility
?
?
?
?
?
?
?
Total Utility
44
76
100
120
136
148
152
Should you purchase a Twinkie first or a Pizza first to get the "biggest bang for the buck"? How can you tell? What should you purchase second, third, etc. until you exhaust your budget?You will probably need to add additional columns and do additional calculations to answer this appropriately.
Confirm that the combination of Twinkies and Pizzas you end up with will maximize your total utility by computing the total utility from other points on the budget line and comparing them to what you chose.Make sure that the utility maximizing rule has been satisfied. If you need a refresher in drawing a graph see the video below.
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