Question

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 life consumed (see image).
a) What is the optimal quantity of pizza slices for John to buy? Explain. (For now, completely ignore the funnel cake column).

b) If John purchased 8 slices, what total utility would he enjoy?

c) 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 (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.

e) At John’s optimal consumption bundle, what total utility will he gain?

Answer 1

The optimal amount of Pizza that John would be able to buy is 5.  

How to solve for the optimum

1. We can see that he has zero as his 6th consumption based on marginal Utility. This shows that he can consume 5 pieces of Pizza.

2. If he should purchase 8 slices, total utility is calculated as

20 + 12 + 10 + 6 + 2 + 0- 2 - 6

= 42

3. This is added as an attachment

4. Total amount that John can spend = $ 20. Given that he cannot make use of his savings, the total amount that he can consume would be what is less than 3 slices and 4 funnel cake.

5. The total utility that John is going to gain would be calculated as

Total utility = 20+12+50+40+32+20 = 32 + 142 = 174

This puts the total utility at 174

Read more on marginal utility here:

brainly.com/question/15050855

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