Table 10-6
Table 10-6 shows Antonio's utility from beer and pizza.
-Refer to Table 10-6.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 10-6
  Table 10-6 shows Antonio's utility from beer and pizza.
-Refer to Table 10-6.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

Antonio should consume more beer until his marginal utility for beer equals his marginal utility for pizza. At that point, he should consume more pizza until his marginal utility for pizza equals his marginal utility for beer. In this case, Antonio's marginal utility for beer is highest at 18 utils for the first glass, and then it decreases to 16 utils for the second glass. His marginal utility for pizza is highest at 20 utils for the first slice, and then it decreases to 18 utils for the second slice. Thus, Antonio should consume 3 glasses of beer and 2 slices of pizza to maximize his utility, because the marginal utility per dollar spent on beer is higher than the marginal utility per dollar spent on pizza up to the third glass of beer, and the marginal utility per dollar spent on pizza is higher than the marginal utility per dollar spent on beer for the second slice of pizza.

Table 10-6 Table 10-6 Shows Antonio's Utility from Beer and Beer