Table 10-7

Table 10-7 shows Antonio's utility from beer and pizza.
-Refer to Table 10-7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximizes his utility?

Question

Table 10-7
  
Table 10-7 shows Antonio's utility from beer and pizza.
-Refer to Table 10-7.Suppose Antonio has $10 to spend and the price of beer = $2 per glass and the price of pizza = $2 per slice.How many of each good will he consume when he maximizes his utility?

Quizplus · Accepted Answer

To maximize utility, Antonio should consume the combination of beer and pizza that gives him the highest total utility for the $10 he has to spend. From Table 10-7, we can see that the marginal utility per dollar spent on the third glass of beer is 4.5, which is higher than the marginal utility per dollar spent on the second glass of beer (3.5) or the first glass of beer (2.5). Similarly, the marginal utility per dollar spent on the third slice of pizza is 8.5, which is higher than the marginal utility per dollar spent on the second slice of pizza (7.0) or the first slice of pizza (5.5). Therefore, Antonio should consume 3 glasses of beer and 2 slices of pizza, which cost a total of $10 ((3 x $2) + (2 x $2) = $10) and give him a total utility of 26.5. None of the other options result in a higher total utility for the $10 Antonio has to spend.

Table 10-7 Table 10-7 Shows Antonio's Utility from Beer and Pizza