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Practice Sheet 2 - SOLUTIONS |
1) You are attending a reception in honor of your economics instructor. Slices of your favorite pizza are provided for free. You may eat as much as you like. Below is a partial table indicating the enjoyment you receive from eating each slice of pizza.
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a) Complete the table above. (SEE TABLE ABOVE)
b) Graph both the Total Utility curve and the Marginal Utility curve on the same Utility - Quantity graph.
c) According to the table (and assuming you are a rational, utility-maximizing agent) how many pieces of pizza will you eat at in order to maximize your total utility?
I will eat 5 pieces then stop.
d) What will be the marginal utility of the last piece of pizza that you eat?
My last (fifth) piece of pizza will give me 0 additional units of pleasure.
2) Maxine Pleasure is engaged in her favorite pastime - watching C-SPAN re-runs of the latest Presidential elections at the Loose Goose micro-pub. Maxine is drinking "Loosie's Luscious Ale", and eating chocolate brownies and jalapeno peppers - her favorite meal. Maxine has $17 to spend. The table below indicates Maxine's utility from consuming her three favorite foods. "Loosie's Golden" is $3 a pint. The chocolate brownies cost $2 and the jalapenos are $1 each.
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a) How many units of each will Maxine buy to maximize her total pleasure? Show any calculations you need to make.
Maxine will buy: 3 brownies, 2 jalapenos and 3 beers, in the following order of MU/P: 2 beers; 1 jalapeno; 1 brownie, 1 jalapeno, 1 beer simultaneously; 2 brownies.
b) Briefly explain the reasoning behind your answers.
Maxine is a utility-maximizer. Consequently she will buy products in the order of providing the highest MU/P. She buys 2 beers first since they provide 16 and 15 units of pleasure, more than any other option. She then buys 1 jalapeno at 12 units of pleasure, followed by 1 brownie, I jalapeno and I beer simultaneously, since they each give her the same 10 units of MU per $1 spent. She tops it off with two brownies consecutively with 9 and 8 units of pleasure, and thereby runs out of money
c) Suppose Maxine values each dollar at 9 units of utility. What will she choose to do now?
She will stop after buying her second brownie at 9 units of MU/P since her third brownie would give her less MU/P (8) than her money is worth to her. Thus, she ends up with : 3 beers, 2 jalapenos, 2 brownies and $2 to take home.
d) How many units of each will Maxine buy if she only has $13 to spend?
She buys 3 beers, 2 jalapenos and 1 brownie. Her last purchase, 1 beer, 1 jalapeno and 1 brownie are purchased simultaneously and they give her 10 units of MU/P each.