Question

Answer the following questions using the following information. Columns 1 and 2 in the table below show the marginal utility that Cody gets by purchasing products A and B. Column 3 shows the marginal utility Cody gets from saving. Assume that the price of A is $14, the price of B is $12, and Cody has an income of $109. a) Find the following series of MU/$ for each column. Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places. Column 1 Column 2 Column 3 Units of A MU MU/$ Units of B MU MU/$ Number of $ saved MU MU/$ 750 54 0 8 0 450 50 390 30 ooooo 10 100 50 20 b) What quantities of A and B will Cody purchase in maximizing his utility? Quantity of A: 0 Quantity of B: 0 c) How many dollars will Cody save? Dollars Saved = $0

Answer 1

A) The table is completed below. MU is divided by price

Product A				Product B				Money
Units	TU	MU	MU/$	Units	TU	MU	MU/$	Number of dollars saved	TU	MU	MU/$
1	75	75	5.36	1	54	54	4.50	1	8	8	8.00
2	143	68	4.86	2	99	45	3.75	2	13	5	2.50
3	202	59	4.21	3	138	39	3.25	3	16	3	1.00
4	256	54	3.86	4	171	33	2.75	4	17	1	0.25
5	300	44	3.14	5	197	26	2.17	5	18	1	0.20
6	338	38	2.71	6	216	19	1.58	6	19	1	0.17
7	368	30	2.14		226	10	0.83	7	20	1	0.14
8	388	20	1.43		231	5	0.42	8	21	1	0.13

B) MU/$ is closest for both goods when A = 5 and B = 3.  This does not exhaust income but maximizes the utility

C) Total spending = 5*14 + 3*12 = $106.

With an income of $109, consumer saves $3.