Question

Lisa consumes only pizzas and burritos. In equilibrium, her marginal utility of pizza is 40 and her marginal utility of a burrito is 32. The price of a pizza is $5. nstructions: Round your answer to 2 decimal places. The price of a burrito is $______________.

Answer 1

Answer:

The price of burito is $4 each

Explanation:

At the equilibrium consumption level ,the price of pizza divided by price of burito equals the marginal utility of pizza divided by the marginal utility of burito, mathematically, this can be expressed as:

Pp/Pb=MUp/MUb

Pp is the price of pizza at $5

Pb is the price of burito that is unknown

MUp  is the marginal utility  of pizza at 40

MUb is the marginal utility of burito at32

5/Pb=40/32

by cross multiplication

40Pb=5*32

40Pb=160

Pb=160/40

Pb is $4

Ultimately from the equation, the price of burito is $4 each