Question

2. Karen likes to consume sandwiches and brownies. Her daily utility from consuming different quantities of sandwiches and brownies is given in the following table: Mus/ Pg Mug/Pe Mus Brownies Mls Sandwiches TUs TUB 0 0 0 0 39 (-9 37 34(G 35 33 31 29 21 25 23 1 39 1 19 38 13 12.33 i1:67 1-o 2 76 72 1-1 111 102 128 30 26 22 144 4 13 5 175 5 150 10.3 9.67 6 6 204 168 7 231 7 182 192 8 256 5 3 8 8.33 767 10 279 9 198 10 300 10 200 21 11 319 6-33 Suppose that Karen's daily income is $33 and the prices of the goods are Ps $3, Pg = $2. 11 -2 198 11 A. Find Karen's optimal consumption bundle. B. If now Karen's income decreased to $25, what is new optimal choice for Karen?

Answer 1

Sandwiches				Brownies
Quantity	Total Utility	Marginal	MU/dollar MU/$3	Quantity	Total Utility	Marginal	MU/dollar MU/$2
		Utility				Utility
0	0	0	-	0	0	0	-
1	39	39	13	1	38	38	19
2	76	37	12.33333	2	72	34	17
3	111	35	11.66667	3	102	30	15
4	144	33	11	4	128	26	13
5	175	31	10.33333	5	150	22	11
6	204	29	9.666667	6	168	18	9
7	231	27	9	7	182	14	7
8	256	25	8.333333	8	192	10	5
9	279	23	7.666667	9	198	6	3
10	300	21	7	10	200	2	1
11	319	19	6.333333	11	198	-2	-1

Budget = $33

Price of Sandwiches = $3

Price of Brownies = $2

A. Equilibrium Condition = MU/Price of Sandwiches = MU/Price of Brownies

At 7 units of Sandwiches and 6 units of Brownies the consumer reaches to equilibrium.

Sandwiches	7	3	21
Brownies	6	2	12
Total Expenditure			$33

B. If the income decreases to $25, the new choice will be

Sandwiches	5	3	15
Brownies	5	2	10
Total Expenditure			$25