Week 1 Practice Problems Ann and Bob have the following MU schedule for pizza (p

Question

Week 1 Practice Problems Ann and Bob have the following MU schedule for pizza (per week): Quantity 1. MU of AnnMU of Bob 24 20 16 12 18 15 12 4 7 0 Price for pizza is $12. How many pizzas will Ann and Bob consume? Who has the higher consumer surplus? (4 points) a) Number of pizzas consumed by Ann: No of pizzas consumed by Bob: (1 points) (I points) (2 points) has higher consumer surplus. b) The pizza place announces a 25% discount for a week. At the discounted price, how many pizzas will they consume in that week? (4 points) (2 points) Number of pizzas consumed by Ann: No of pizzas consumed by Bob: What is law of demand/supply? Draw a demand/supply curve. What is ceteris paribus? How is it related to law of supply/demand? 2.

Explanation / Answer

1.

a) P = 12
Ann and Bob will consume the number of pizzas such that they satisfy MU = P = 12.
Ann will consume 4 pizzas (because that's when MU = P=12)
Bob will consume 3 pizzas (because that's when MU = P=12)

Ann has higher consumer surplus since her willingness to pay is higher than Bob and hence when P =12, Ann earns higher consumer surplus.

b) After 25% discount, P = 8
Ann and Bob will consume the number of pizzas such that they satisfy MU = P = 8
Ann will consume 5 pizzas (because that's when MU = P= 8)
Bob will consume 4 pizzas (because that's when MU is higher and nearest to P = 8)

PS: in the event of multiple questions, only the first one is attempted.

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