Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap i
ID: 1221123 • Letter: K
Question
Keegan has $30 to spend on Pita Wraps and Bubble Tea. The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. The table above shows his total utility from different quantities of the two items. What is Keegan's optimal consumption bundle? What is Keegan's marginal utility per dollar spent on the third pita wrap? If Keegan can drink all the bubble tea he wants for free, how many glasses will he consume? Suppose Joe is maximizing total utility within his budget constraint. If the price of the last pair of jeans purchased is $25 and it yields 100 units of extra satisfaction and the price of the last shirt purchased is $20. then, using the rule of equal marginal utility per dollar spent, how much extra satisfaction must Joe receive from the last shirt? Popular rock band U2 regularly sells out its concerts, charging $80 for its tickets. They could raise ticket prices to $120 and still sell out their concerts, but choose not to do so. What is the best economic explanation for this decision?Explanation / Answer
Ans 1.
a)Total utility will be maximized when Keegan consumes the optimal consumption bundle.Given
that the price of Pita Wrap is 6 and Bubble Tea is 3 utility will be maximized when he consumes
4 Pita wraps and 2 Bubble Tea providing him a utility of 144+70=214
b)Marginal utility per dollar spent on third pita wrap is 6.
c)If he could drink all Bubble tea he could for free he would drink 2 glasses.This is because the additional utility
received from drinking the third glass and so forth is decreasing.
Amount Spent=P*Q
MU(money)=AmountSpendon(n)-AmountSpendon(n-1)
MU(BubbleTea)=TU(n)-TU(n-1)
Q of Pita TU for Pita Price of Pita Amount Spendon Pita MU Tu for BT MU for BT 1 60 6 6 40 2 102 6 12 6 70 30 3 132 6 18 6 91 21 4 144 6 24 6 106 15 5 144 6 30 6 112 6 6 138 6 36 6 115 3 7 128 6 42 6 115 0Related Questions
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