Question

Product A Product B 16 12 12 10 8 6 2 4 Quantity per period st st 24 20 (1) Quantity Product A MU per $ (at $2) Product B MU MU 1 2 3 a) From the graph above, complete columns 2 and 4 of the table above. Round your answers to 2 decimal places. b) If the price of both products is $1, what quantity of each good would Marshall purchase if his budget was $8? Quantity of A Quantity of B: of taple above. c) Suppose that the price of product A increases to $2. Complete column d) If Marshall's budget remained the same, what quantities of each good would he now purchase? Quantity of A: Quantity of B: Next 7 of 8

Answer 1

Ans A) and C)

Q	MU for A	MU per $	MU for B
1	20	10	11
2	16	8	10
3	12	6	9
4	8	4	8
5	4	2	7
6	0	0	0

Ans B)
Price of both the goods is $1 and his budget is $8 then he can buy following pair of combinations

(A,B) TU
(6,0)   60
(5,1)   71
(4,2)    77
(3,3)   78
(2,4)   74
(1,5)   65
(0,6)   52

Hence Maximum utility is achieved when he consumes 3 goods of A and 3 goods of B

Ans D)

Now Price of Good A is $2

(A,B) TU
(4,0)   56
(3,2)   69
(2,4)    74
(1,6)   71

Now TU derived from (2,4) basket is highest hence when Price of Good A is $2 then Quantity of good A consumed is 2 and Quantity of good B consumed is 4