Question

Q3. The following table shows the data willy Rajesh gets from casuming milk and henry. The price of milk $2 per palle, and the price of honey is $i per far. Rajesh's income is $16. Assume that the spends all his income a bene and milk. Quantity Totality Marginal Marginal y Cantity Marginal Merhalt fram MER Utility from Utility from Home/Price ME from MB from of Honey MU MR MU of o 0 o 1 2 44 84 120 3 3 4 104 4 5 152 180 2031 122 S 5 2 7 3 144 Cd the MU well as the MLP Milk and bey and complete missing columns Also calculate the optimal combination of milk and my har Rajesh should consume Share your work Abo show which one he would come the good i.e. he way honey fles, then will, thikapite. Use the MU Price prach to get your Q4. Arthur has to choose between consuming bread and chocolate. He likes chocolate but is nutral towards bead is. he does not care if he cremet er at Sketch three indifference curves for Arthur aner bread and chocolate. Phot beenden the s-axis. Drawn arrow showing which indifferent care represent higher levels

Answer 1

Quantity of Milk	TU for Milk	MU for Milk	MU for Milk / Price	Quantity of Honey	TU for Honey	MU for Honey	MU for Honey / Price
0	0			0	0
1	32	32	16	1	44	44	11
2	60	28	14	2	84	40	10
3	84	24	12	3	120	36	9
4	104	20	10	4	152	32	8
5	120	16	8	5	180	28	7
6	132	12	6	6	204	24	6
7	140	8	4	7	224	20	5
8	144	4	2	8	240	16	4

Maximum Utility will Be Obtained when

MU for Milk / Price per unit = MU for Honey / Price Per Unit

At 4 units of Milk and 2 units of Honey

MU for Milk / Price per unit = MU for Honey / Price Per Unit = 10

Total amount paid for 4 units of Milk = $2 * 4 = $8

Total Amount paid for 2 units of Honey = $4 * 2 = $8

Adding above we get

$8 + $8 = $16 which is equal to the Rajesh's Budget.

Rajesh will keep on consuming units of milk until MU for Milk / Price per unit is greater than MU for Honey / Price Per Unit.

He will consume first three units of Milk as MU for Milk / Price per unit for first three units is 16, 14, 12 respectively and is greater than that of Honey. Then he will consume 1 unit of honey. Then after that he can consume either honey or milk in fifth place as per unit marginal utility is same in both cases which is equal to 10. Let us suppose he consumed milk in fifth place. Then at 6th place he will consume honey.( or vice versa can happen at last two places).