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5) Ana has $40. She wants to spend all her money on pizza and Amazon Video rentals. Assume that the price of a pizza is $8 an

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Answer #1

a ) Ans:

Number
of Pizzas ( Qp)		 Total Utility
( TUp)		 Marginal Utility
( MUp)		 Marginal Utility per Dollar
( Pp =$8)		 Number of Video rentals ( Qvr) Total Utility
( TUvr)		 Marginal Utility
( MUvr)		 Marginal Utility per Dollar
( Pvr =$4)
0 0 -- -- 0 0 -- --
1 56 56 7 1 40 40 10
2 88 32 4 2 68 28 7
3 112 24 3 3 88 20 5
4 130 18 2.25 4 100 12 3
5 142 12 1.5 5 108 8 2
6 150 8 1 6 114 6 1.5

b ) Ans:

Optimal condition :

  • MUp / Pp = MUvr / Pvr
  • Entire given income or budget must be spend on these two goods.

Optimal consumption for Ana ; 3 slices of pizza and 4 numbers of video rental

Explanation:

Y = Pp * Qp + Pvr * Qvr

$40 = ($8 * 3) + ($4 *4)

c ) Ans: Optimal consumption now ; 1 slices of pizza and 2 numbers of video rental

Explanation:

Y = Pp * Qp + Pvr * Qvr

$16 = ($8 * 1) + ($4 *2)

d ) Ans: Optimal consumption bundle ; 4 slices of pizza and 4 numbers of video rental

Explanation:

Y = Pp * Qp + Pvr * Qvr

$40 = ($6 * 4) + ($4 *4)

Number
of Pizzas ( Qp)		 Total Utility
( TUp)		 Marginal Utility
( MUp)		 Marginal Utility per Dollar
( Pp =$6)		 Number
of Video rentals ( Qp)		 Total Utility
( TUvr)		 Marginal Utility
( MUvr)		 Marginal Utility per Dollar
( Pp =$4)
0 0 -- -- 0 0 -- --
1 56 56 9.33 1 40 40 10
2 88 32 5.33 2 68 28 7
3 112 24 4 3 88 20 5
4 130 18 3 4 100 12 3
5 142 12 2 5 108 8 2
6 150 8 1.33 6 114 6 1.5
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