Assume that a consumer purchases a combination of products A and B. The MUa is 5 and the Pa is $5.

The MUb is

The Mua/Pa = 1 = MUb/Pb, therefore the consumer shouldn't make any changes in his purc
and the Pa is $5. The MUb is 6 and the Pb is $6. What should this consumer do to maximize utility?

make any changes in his purchases/consumption.

•Assume that a consumer purchases a combination of products Y and Z. The MUy is 50 and the Py is $25. The MUz

Muy/Py = 50/25 = 2 Muz/Pz = 20/5 = 4

The consumer must consume/purchase more of product Z and less of product Y, until margi
50 and the Py is $25. The MUz is 20 and the Pz is $5. What should this consumer do to maximize utility?

less of product Y, until marginal utility is equal for both.

Units MU of Hot dogs MU of coke MUh/Ph MUc/Pc •Price of Hot dog is Rs. 5 and coke Rs. 4.
1 40 120 8 30 •Budget is Rs. 40.
2 30 80 6 20 •Find out the consumption basket?
3 25 40 5 10
4 20 32 4 8
5 15 16 3 4
6 10 8 2 2
Rs. 5 and coke Rs. 4.

mption basket?
 •A. Construct a table showing the marginal utilit
the trend in marginal utility per do
•B. If consumption of three units of goods i
•C. If consumption of five units of services i
• D. Calculate the optimal allocation of a $15

Goods (G) Services (S)

Units Total Utilit MU Mug/Pg total cost Units Total Utilit Mu

0 0 0 0 0 0 0 0
1 150 150 6 25 1 100 100
2 275 125 5 50 2 190 90
3 375 100 4 75 3 270 80
4 450 75 3 100 4 340 70
5 500 50 2 125 5 400 60
ble showing the marginal utility derived from the consumption of goods and services. Also show
rend in marginal utility per dollar spent (the MU/P ratio) if PG = $25 and PS = $20.
ption of three units of goods is optimal, what level of services consumption could also be justified?
ption of five units of services is optimal, what level of goods consumption could also be justified?
the optimal allocation of a $150 budget. Explain.

consumption of goods is optiomum at level of 3

Mus/Ps total cost 1 goods which has a MU/P of 4 so he would buy 3
units of services
0 0
5 20
4.5 40
4 60
3.5 80
3 100
 Bridget has a limited income and consumes only wine and cheese, her current consumption choice is four bottles
wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese is $4 per pound. The la
bottle of wine added 50 units of Bridget’s utility, while the last pound of cheese added 40 units.
•Is Bridget making the utility-maximizing choice? Why or why not?
•If not, what should she do instead? Why?

quantity price total price

wine 4 10 40
cheese 10 4 40

units Muw Muw/pw unit Muc Muc/pc

1 1
2 2
3 3
4 50 5 4
5
6
7
8
9
10 40 10
umption choice is four bottles of
heese is $4 per pound. The last
heese added 40 units.
 •Suppose Bill is on a low-carbohydrate diet. He can eat only three foods. Rice Krispies, cottage cheese and popco
food are tabulated below. Bill in allowed only 167 grams of carbohydrates daily. Rice-Krispies, cottage cheese, a
grams of carbohydrates per cup, respectively. Referring to the accompanying table, respond to the

•Given that Bill can consume only 167 grams of carbohydrates daily, how many cups of each food will be consume
•b. Suppose Bill’s doctor tells him to further reduce his carbohydrate intake to 126 grams per day. What com

Units of food Marginal utility Marginal utility Marginal utility

(cups/day) of Rice Krispies of cottage cheese of popcorn

1 175 72 90
2 150 66 80
3 125 60 70
4 100 54 60
5 75 48 50
6 50 36 40
7 25 30 30
8 25 18 20
ies, cottage cheese and popcorn. The marginal utilities for each
ice-Krispies, cottage cheese, and popcorn provide 25, 6 and 10
panying table, respond to the following questions:

of each food will be consume daily? Show your work.

126 grams per day. What combination will he consume?
Optimise sales from a weekly advertising budget of Rs. 2000 2 on tv 4 on radio
Option of advertising on TV or on Radio
Impact of the ad measured through sales in retail store.
Objective is to maximise sales or units sold as measured by benefits
Price of ad on TV is Rs 400 and Price of ad on Radio is Rs 300

Marginal Benefit of
Number of ad ad on TV
1 400
2 300
3 280
4 260
5 240
6 200
Marginal Benefit of
ad on Radio Mtv/ptv cost tv Mr/Pr cost radio
360 1 400 1.2 300
270 0.75 800 0.9 600
240 0.7 1200 0.8 900
225 0.65 1600 0.75 1200
150 0.6 2000 0.5 1500
120 0.5 2400 0.4 1800