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Mary derives utility from buying pizza and ice cream during lunch.
Mary gets 12 units of marginal utility from her first pizza, 8 units of marginal utility from her second pizza, 4 units of marginal utility from her third pizza, and so on, with marginal utility declining for each additional pizza.
Mary gets 5 units of marginal utility from her first ice cream, 4 units of marginal utility from her second ice cream, 1 units of marginal utility from her third ice cream, and so on, with marginal utility declining for every additional ice cream consumed.
A pizza costs $2 but a ice cream costs only $1. Mary has $4 to spend on lunch.
assuming that you can also buy half a pizza. Start off with the choice of zero pizzas and 4 ice creams, and calculate the changes in marginal utility of moving along the budget line to the next choice of half a pizza and 3 ice cream.
Using this step-by step process based on marginal utility, create a table and identify Mary’s utility-maximizing choice. Compare the marginal utility of the two goods and the relative prices at the optimal choice to see if the expected relationship holds.
Sagot :
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