Lilly Davis has $5 per week to spend on any combination of ice cream and candy. The price of an ice cream cone is $2 and the price of a candy bar is $1. The table below shows Lilly's utility values
Use the table to answer the questions that follow the table.
Quantity of Ice Cream Cones Total Utility Marginal Utility Marginal Utility per Dollar Quantity of Candy Total Utility Marginal Utility
1 20 1 20
2 38 2 38
3 52 3 48
4 62 4 54
a. Complete the table by filling in the blank spaces.
b. Suppose Lilly purchases 2 ice cream cones and 1 candy bar. Is she consuming the optimal consumption bundle? If so, explain why. If not, what combination should she buy and why?
a.
Quantity of Ice Cream Cones Total Utility Marginal Utility Marginal Utility per Dollar Quantity of Candy Total Utility Marginal Utility
1 20 20 10 1 20 20
2 38 18 9 2 38 18
3 52 14 7 3 48 10
4 62 10 5 4 54 6
b. If Lilly purchases 2 ice cream cones and 1 candy bar she is not maximizing her utility. The marginal utility per dollar spent on ice cream cones = 9 and marginal utility per dollar spent on candy bars = 20. Her total utility from this bundle is 58 utils. If she buys 1 ice cream cone and 3 candy bars, she will equate her marginal utilities per dollar and the total utility from this bundle = 68.
You might also like to view...
The above table gives some of the costs of the Delicious Pie Company. What is the average variable cost of producing 300 pies?
A) $1,800 B) $6 C) $5 D) More information is needed to calculate the average variable cost.
Which of the following could increase unemployment and inflation simultaneously?
A) a decrease in the real wage B) an increase in oil prices C) expansionary monetary policy D) contractionary monetary policy
Which of the following are important components of the hydrologiccycle?
a. evaporation c. precipitation b. transpiration d. all of the above
This figure displays the choices being made by two coffee shops: Starbucks and Dunkin Donuts. Both companies are trying to decide whether or not to expand in an area. The area can handle only one of them expanding, and whoever expands will cause the other to lose some business. If they both expand, the market will be saturated, and neither company will do well. The payoffs are the additional profits (or losses) they will earn.The outcome of the game in the figure shown predicts that Starbucks will earn profits of:
A. -$1 million. B. -$2 million. C. $2 million. D. $0 million.