Question

4- Consumer utility

Quantity	Total Utility from A	Total Utility from B
1	40	37
2	76	72
3	108	105
4	136	136
5	160	165
6	180	192
7	196	217
8	208	237
9	216	252
10	220	262
11	220	267
12	216	267
13	208	262
14	196	252
15	180	237

You are given the above total utilities for different consumption amounts of goods A and B. The consumer has a budget of 60, the price of A is 4, and the price of B is 5.

a) Calculate all the marginal utilities and marginal utility – price ratios and display them on a table. Show all your work.
b) Prepare a separate table that shows all the possible combinations of A and B, and their respective utilities. Add one to the total utility of each combination for each unspent unit from the budget (for combinations where not all the 60 can be spent).

c) Which combination maximizes utility? Explain in detail, using two pieces of evidence.
d) Graph your result using a budget line and an indifference map.

-The budget line should be precise with properly scaled x- and y- axes.
- Show a few indifference curves; at least one not optimal, at least one not attainable, and the optimal one, with correct point of tangency.

Answer 1

Q TUA TUO Tuomo Autumunun M M Tuo meo PAT MUA MUB TUA- TUA-I TU-TUR 40 37 35 MUB Po 7.4 36 + 4037 76 72 108 105 136 136 32 33 6.5 28 31 6.2 24 5.8 160 165 1801192. 196 217 20 5.4 25 208 237 20 21 6 952 15 lunumllllllo - dm + 20 262 267 5 1 -4 13 220 916 908 196 180 267 262 252 237 -5 -10 14 15 1 -16 -15 PA Pol Ist order of utility manimisation MUA - MUD is met at several levels (77) (6,0 (5,574, 4) (3,3,77272) Tilly (b) All possible combination are 99 ? ist and Brel Combinations ITU I Budget (4,2) Jeoda 4 unit & B-rumas 136+72)+344x4+52=26. (6,7) (1807217)+11486 +5x7=59 (7,8] -|(196+937) 14x7+518:68 89 (208 + 252) 4x8+ 5x9-77 9,10 916+ 26 27 |4x 9+5810-86 K220+267) lo, il Tux10+5X112105 4th 51 6th co Ind combination le 6 units of good at and I unit of good B i used to marimise the entility because here ♡ MUA = MUB ist condition in (22) Budget line. Pa Ba + P S B = M ( 2nd are suited) PA PA

dots Budget line equation an To TM is tconsumers income) I PADA + PA OB = M 48A +5QR = 6 3 op Glood B qutuo X IC3 1C2 Tota In Ich 2 4 6 8 10 12 ints 16 . Fin? Good tist ih Thus consumer gets equilibrium at I C2 with 6 unit of A and of unit of B:. Ic, has less goods so it is not optimal. Ila has more goods (A and or B) beit beyond the capacity (budget) of the consumer.