Table 10-6

Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 10-6.What is Jay's optimal consumption bundle?

Question

Table 10-6
  
Table 10-6 lists Jay's marginal utilities for burgers and Pepsi. Jay has $7 to spend on these two goods. The price of a burger is $2 and the price of a can of Pepsi is $1.
-Refer to Table 10-6.What is Jay's optimal consumption bundle?

Quizplus · Accepted Answer

To find Jay's optimal consumption bundle, we need to look for the combination of burgers and Pepsi that maximizes his total utility given his budget. Using the marginal utility per dollar spent approach, we can compare the marginal utility per dollar spent on each good and allocate our budget accordingly.

For burgers, the marginal utility per dollar spent is highest for the first two burgers, at 8 utils per dollar spent. For Pepsi, the marginal utility per dollar spent is highest for the first three cans, at 10 utils per dollar spent.

Therefore, to maximize his total utility under the budget constraint, Jay should consume 2 burgers and 3 cans of Pepsi, which would cost him $2*2+$1*3=$7. This consumption bundle gives a total utility of 16 utils (8 from burgers and 8 from Pepsi), which is the highest utility possible given his budget.

Table 10-6 Table 10-6 Lists Jay's Marginal Utilities for Burgers and Pepsi