Question

oncept: Equal MU per Dollar 1 The following table shows William's utility from consuming slices of cake and cans of Coke Total Utility from Cake Marginal Utili from Last Slice … : Coke tyCans ofTotal Utility Slices of Cake Marginal Utility from Last Can from Coke 36 30 24 30 30 25 20 15 10 36 2 90 108 120 126 75 90 100 105 12 6 5 Suppose William has $8.60 per week to spend on cake and Coke. The price of a slice of cake is $3.60 and the price of a can of Coke is $1.00. f William wants to maximize his utility, he should buy □ slice(s) of cake and can(s) of Coke

Answer 1

Slice of Cake	TU from cake	MU from last slice	MU per $ MU/Price	Canes of Coke	TU from coke	MU from last slice	MU per $ MU/Price
0	0	0	NA	0	0	0	NA
1	36	36	10	1	30	30	30
2	66	30	8.333333	2	55	25	25
3	90	24	6.666667	3	75	20	20
4	108	18	5	4	90	15	15
5	120	12	3.333333	5	100	10	10
6	126	6	1.666667	6	105	5	5

Price of Cake = $3.60

Price of Coke = $1.00

Expenditure available = $8.60

Calculate the marginal utility per dollar

MU per $ = MU/Price

Equilibrium condition = MU_cake/Price_cake= MU_coke/Price_coke

In this table there are two combinations where the marginal utilities per dollar of both the goods are equal.

1^st

1 unit of cake and 5 units of coke

Expenditure = 1*$3.60 + 5*$1 = $8.60

2^nd

4 units of cake and 6 units of coke

Expenditure = 4*$3.60 + 6*$1 = $20.4

This combination is not attainable.

Out expenditure limit is $8.60

Hence, if William wants to maximize his utility, he should buy 1 slice of cake and 5 cans of coke.