Question

The following table shows​ Ellie's utility from consuming slices of cake and cans of Pepsi.
Suppose Ellie has ​$12 per week to spend on cake and Pepsi and that the price of a slice of cake is ​$2.00.
​1.) Use the point drawing tool to plot​ Ellie's demand for Pepsi at a price of ​$2.00. Label this point​ 'A'.
​2.) Use the point drawing tool to plot​ Ellie's demand for Pepsi at a price of ​$4.00. Label this point​ 'B'.
​3.) Use the line drawing tool to connect the dots to form​ Ellie's demand curve. Properly label this line.
Carefully follow the instructions​ above, and only draw the required objects.

The following table shows Ellie's utility from consuming slices of cake and cans of Pepsi. 5- Slices of Cake 0 Marginal Utility from Last Slice 4.5- Cans of Pepsi 0 Marginal Utility from Last Can 4- 1 1 3.5- 3- 2 3 4 5 6 120 100 80 60 40 20 2 3 4 5 6 120 60 45 30 20 15 Price of Pepsi 5 2.5- 2- 1.5- Suppose Ellie has $12 per week to spend on cake and Pepsi and that the price of a slice of cake is $2.00. 1- 1.) Use the point drawing tool to plot Ellie's demand for Pepsi at a price of $2.00. Label this point 'A'. 2.) Use the point drawing tool to plot Ellie's demand for Pepsi at a price of $4.00. Label this point 'B'. 0.5- 0 3.) Use the line drawing tool to connect the dots to form Ellie's demand curve. Properly label this line. Quantity of Pepsi Carefully follow the instructions above, and only draw the required objects.

Answer 1

When price of pepsi is $2.

Slices of cake	marginal utility from last slices	(Marginal utility from last slices / price of cake)	Cans of pepsi	Marginal utility from last can	(Marginal utility from last can / Price of pepsi)
0			0
1	120	60	1	120	60
2	100	50	2	60	30
3	80	40	3	45	22.5
4	60	30	4	30	15
5	40	20	5	20	10
6	20	10	6	15	7.5

At utility maximization point following condition must holds subject to budget constraint.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi)

The above condition is satisfied by three combination of goods:

Combination 1: 1 slice of cake and 1 can of pepsi.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi) = 60

Cost of buying this bundle = ($2 * 1) + ($2 *1) = $4

Income available to buy this bundle = $12

Since, cost is less than income. Consumer is not fully utilizing the income. Hence, this bundle does not maximize utility subject to budget constraint.

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Combination 2: 4 slice of cake and 2 can of pepsi.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi) = 30

Cost of buying this bundle = ($2 * 4) + ($2 *2) = $12

Income available to buy this bundle = $12

Since, cost is equal to income. Consumer is fully utilizing the income. Hence, this bundle maximize utility subject to budget constraint.

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Combination 3: 6 slice of cake and 5 can of pepsi.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi) = 10

Cost of buying this bundle = ($2 * 6) + ($2 *5) = $22

Income available to buy this bundle = $12

Since, cost is more than income. This bundle is out of budget of consumer. Hence, this bundle does not maximize utility subject to budget constraint.

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Thus, utility maximization bundle is 4 slices of cake and 2 cans of pepsi.

It means when price of pepsi is $2, then demand for pepsi is 2 cans.

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When price of pepsi is $4.

Slices of cake	marginal utility from last slices	Marginal utility from last slices / price of cake	Cans of pepsi	Marginal utility from last can	(Marginal utility from last can / Price of pepsi)
0			0
1	120	60	1	120	30
2	100	50	2	60	15
3	80	40	3	45	11.25
4	60	30	4	30	7.5
5	40	20	5	20	5
6	20	10	6	15	3.75

At utility maximization point following condition must holds subject to budget constraint.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi)

The above condition is satisfied by three combination of goods:

Combination 1: 4 slice of cake and 1 can of pepsi.

(Marginal utility from last slices / price of cake) = (Marginal utility from last can / Price of pepsi) = 30

Cost of buying this bundle = ($2 * 4) + ($4 *1) = $12

Income available to buy this bundle = $12

Since, cost is equal to income. Consumer is fully utilizing the income. Hence, this bundle maximize utility subject to budget constraint.

Thus, utility maximization bundle is 4 slices of cake and 1 cans of pepsi.

It means when price of pepsi is $4, then demand for pepsi is 1 cans.

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Pepsi demand schedule

Price	Quantity demanded
2	2
4	1

Pepsi demand curve 4.5 A 4 3.5 3 2.5 Price of pepsi 00 2 1.5 -Pepsi dem and curve 1 0.5 0 0 3 1 2 Quantity of pepsi