Activity 2 Consumer Behavior (Utility Maximizing Rule)

Deadline: November 19, 2021

Name: ____________________________ Course & Section: __________________

You have P10. The price of beer is P1 per bottle and the price of steak sandwich is P 2.

The utility received from consuming beer and steak is given below.

PROBLEM: How many beers and steak sandwiches should be bought to maximize utility? What is the
total utility?

Number Total Marginal MU/Price Number Total Marginal MU/Price

of beers Utility of Utility of of beer of steaks utility of Utility of of steaks
beer beer steaks steaks

0 0 0 0
1 20 1 30

2 35 2 50
3 45 3 65

4 50 4 75
5 52 5 80
 Activity No. 2 Consumer Behavior (Indifference Curve, Budget Line & Equilibrium at Tangency)

Critical Thinking Questions

1) What point is preferred along an indifference curve?

2) How can you tell which indifference curves represent higher or lower levels of utility?

3) Why does the consumer get the maximum satisfaction when the indifference curve is tangent to the
budget line?

4) Describe how rational consumers maximize utility by comparing the marginal utility-to-price ratios
of all the products they could possibly purchase.
5) Explain the utility maximization rule and how it pertains to consumer's decision making

4) How does a consumer achieve equilibrium given an indifference curve and budget line?

5) . One consumer’s indifference curves and budget line are given in the following graph. A is the
optimal choice given the budget line. If the income increases, the consumer chooses a point which is
located northwest side of A.(There is no change in the prices.) What can we say about good X and good

Y?