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Chapter 20: Q. 5 (page 452)

Return to Problem 20-4. Suppose that the price of cheeseburgers falls to $1. Determine the new utility maximizing combination of cheeseburgers and french fries.

Short Answer

Expert verified

The combination that maximize the utility of cheeseburgers and french fries are 4 and 2, respectively.

Step by step solution

01

- Introduction

Below is a graph of the marginal and total utility of cheeseburgers and french fries.

In this table, we've added two columns of marginal utility per dollar for cheeseburgers and french fries. The first cheeseburger has a marginal utility of 20(20/1=20)per dollar, while the marginal utility per dollar after eating the first fried food is (10/1=10). Cheeseburgers have a high marginal utility, so buy a cheeseburger. This leaves you with $5(6-1=5)in income.
02

Step 2- Explanation

The second cheeseburger has a high marginal utility per dollar of 16, so the cheeseburger is also bought and the remaining income is $4(5-1=4). The third cheeseburger also has a high marginal utility per dollar of 12, so the third cheeseburger is also bought and the income is $3(4-1=3).

Buy the first french fries because eating the first french fries has a higher marginal utility per dollar than eating the fourth cheeseburger (8:10). This leaves you with$1(2-1=1) of income.

03

Step 3- Conclusion

The marginal utility per dollar for the second french fries is 8, which is equal to the marginal utility per dollar for the cheeseburger, so 8 and all income is spent equally on consumption. 4 cheeseburgers for $4and 2 french fries for $2, all revenue is $6(4+2=6).

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Most popular questions from this chapter

As an individual consumes more units of an item, the person eventually experiences diminishing marginal utility. This means that to increase marginal utility, the person must consume less of an item. Explain the logic of this behavior using the example in Problem 20-1.

Illustrate Sue's new budget constraint and indifference curve in a diagram from the data in Problem F-3. Illustrate also the utility-maximizing combination of goods.

Sue's monthly budget for bottled water and soft drinks is \(23. The price of bottled water is \)1per bottle, and the price of soft drinks is$2per bottle. Calculate the slope of Sue's budget constraint. Given this information and the information provided in Problem F-3, find the combination of goods that satisfies Sue's utility-maximization problem in light of her budget constraint.

Your classmate tells you that he is indifferent between three soft drinks and two hamburgers or two soft drinks and three hamburgers.

a. Draw a rough diagram of an indifference curve containing your classmate's consumption choices.

b. Suppose that your classmate states that he is also indifferent between two soft drinks and three hamburgers or one soft drink and four hamburgers, but that he prefers three soft drinks and two hamburgers to one soft drink and four hamburgers. Use your diagram from part (a) to reason out whether he can have these preferences.

Refer to the following table for a different consumer, and assume that each week this consumer buys only weckly subscriptions to ceonomic statistics apps and subscriptions to office productivity apps. The price of a subscription to each type of economic statistics app is \(2per week, and the price of a subscription to each office productivity app is \)60per week. If the consumer's available income is $128per week, what quantity of each item will the individual purchase each week at a consumer optimum?
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