How to complete the missing cells in the filing table?
if the price of a cheeseburger is $2, the price of a bag of french fries is $1, and you have $6 to spend (and you spend all of it), what is the utility-maximizing combination of cheeseburgers and french fries?
if the price of a cheeseburger is $2, the price of a bag of french fries is $1, and you have $6 to spend (and you spend all of it), what is the utility-maximizing combination of cheeseburgers and french fries?
1 Answer
When the consumer consumes 2 units of cheese and 2 units of fries, his total utility is maximum.
Explanation:
First complete the table
Use this formula.
TU of the 3rd cheese burger = Total utility of the 2nd cheese burger + Marginal Utility of the 3rd cheese burger
This is the Formula to Calculate Total Utility
TUn = TU(n-1) - MUn
Where -
TUn = Total Utility of the nth unit
TU(n-1) = Total Utility of the (n-1)th unit
MUn = Marginal Utility of the nth unit
For example in our case –
Total Utility of the 3rd cheese burger = Total utility of the 2nd cheese burger + Marginal Utility of the 3rd cheese burger
This is the formula to calculate Marginal Utility –
MUn = TUn - TU(n-1)
Where -
MUn = Marginal Utility of the nth unit
MUn = Total Utility of the nth unit
TU(n-1) = Total Utility of the (n-1)th unit
After completing the table you have to find the Ratios - Marginal Utility of Cheese burger/ price of cheese burger and Marginal utility of French Fries/Price of French fries for each unit.
Place the values in a new column in the existing table and populate it with the values.
Keep in mind when he consumes nothing, his TU = 0 and MU = 0
Now you have to apply the conditions to get maximum Total Utility
1st condition
#(MU_b)/P_b=(MU_f)/P_f#
2nd condition
#(Q_b xx P_b)+(Q_f xxP_f)=# Total amount
[Quantity of cheese x Price of cheese) + (Quantity of Fries x Price of fries) = Total amount
According to our table when the consumer consumes 1 unit of cheese and 1 unit of fries, the first condition is satisfied and not the second condition.
When the consumer consumes 2 units of cheese and 2 units of fries, both the conditions are satisfied.
#(MU_b)/P_b=(MU_f)/P_f# ; 8 = 8
#(Q_b xx P_b)+(Q_f xxP_f)= # Total amount ; (2 x 2) + (2 x 1) =6
Hence when the consumer consumes 2 units of cheese and 2 units of fries, his total utility is maximum.
Total Utility = TU from 2 units of cheese + TU from 2 units of Fries = 36 + 18 = 54 units.
Law of Equi-Marginal Utility Part - 1
