UTITLITY MAXIMIZATION RULE Two constraints The goal of all individuals, for an econ point of view, is to maximize utility. We are trying to get all we can with the limited resources we have while at the same time attaining the greatest degree of satisfaction / pleasure from consuming an item or service. The utility maximizing rule is thus: MUx/px = MUy/Py or MUx/MUy=Px/Py So, once you have used all of your incomes and the above numbers are equal you are said to be in equilibrium. Solve the following problems, please note that some show TU and some MU. #1 We are given two items, price of each and a budget constraint. In the following example Joeblow has an income of $20, each coffee cost $2 and each Kolache cost $4. Find the correct combination that maximizes Joeblows utility with the constraints given. Cups of Coffee TU of coffee # of Kolaches TU of Kolaches 1 10 1 30 2 18 2 54 3 24 3 74 4 28 4 90 5 30 5 104 6 31 6 112 #2 Brian now has $24 and coffee is $2 and Kolaches are $4 Cups of Coffee MU of # of coffee Kolaches MU of Kolaches 1 15 1 25 2 12 2 20 3 10 3 12 4 6 4 8 5 2 5 4 6 1 6 1 # 3 Stacey has $15 to spend on either Moonpies or Twinkies. Moonpies cost $1.50 and Twinkies cost $3 #moon pies MU of moon pies # of cupcakes MU of cupcakes 1 30 1 45 2 20 2 39 3 13 3 30 4 7 4 21 5 2 5 9 6 1 6 3 UTITLITY MAXIMIZATION RULE Two constraints The goal of all individuals, for an econ point of view, is to maximize utility. We are trying to get all we can with the limited resources we have while at the same time attaining the greatest degree of satisfaction / pleasure from consuming an item or service. The utility maximizing rule is thus: MUx/px = MUy/Py or MUx/MUy=Px/Py So, once you have used all of your incomes and the above numbers are equal you are said to be in equilibrium. Solve the following problems, please note that some show TU and some MU. #1 We are given two items, price of each and a budget constraint. In the following example Joeblow has an income of $20, each coffee cost $2 and each Kolache cost $4. Find the correct combination that maximizes Joeblows utility with the constraints given. Cups of Coffee TU of coffee # of Kolaches TU of Kolaches 1 10 1 30 2 18 2 54 3 24 3 74 4 28 4 90 5 30 5 104 6 31 6 112 #2 Brian now has $24 and coffee is $2 and Kolaches are $4 Cups of Coffee MU of # of coffee Kolaches MU of Kolaches 1 15 1 25 2 12 2 20 3 10 3 12 4 6 4 8 5 2 5 4 6 1 6 1 # 3 Stacey has $15 to spend on either Moonpies or Twinkies. Moonpies cost $1.50 and Twinkies cost $3 #moon pies MU of moon pies # of cupcakes MU of cupcakes 1 30 1 45 2 20 2 39 3 13 3 30 4 7 4 21 5 2 5 9 6 1 6 3