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 af

Question

1 year ago

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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 af

ter 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?

Advanced Placement (AP)

1 answer:

IRISSAK [1] · Answer 1 · 2023-06-01T18:29:58+03:00

From the above table we can see the MU from consumption of 6th spice is zero. Therefore, John will consume 5 slices of Pizza.

<h3> If John purchased 8 slices, what total utility would he enjoy?</h3>

When he consumes 8 slices of Pizza then the total utility that he will derive will be:

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

= 42 utils.

<h3>What is the complete table that shows the marginal utility per dollar for each slice of pizza and each funnel cake?</h3>

See the attached table I in the attached.

<h3>Assuming John’s parents do not allow him to use any savings, what is his optimal consumption bundle of pizza and funnel cakes? </h3>

When John expends all of his income and cannot use his savings, he will maximize his overall utility.

Then he will maximize his TU when the MU/$ of the two commodities are equal. According to the preceding data, the MU/$ is equivalent for the following combinations. See table II in the attached.

From the chart above, we can see that he can spend up to $ 20 if he consumes three pieces of pizza and four funnel cakes.

However, because he cannot spend his funds, he will have fewer than three slices and four funnel cakes.

As a result, he will give up 1 slice of pizza because the third slice provides him a MU of 10 utils and the fourth piece of Funnel cake gives him a MU of 20 utils.

The optimal consumption basket contains two pieces of pizza and four funnel cakes.

<h3>At John’s optimal consumption bundle, what total utility will he gain?</h3>