s. owing table shows Tom\'s total utility from Hotdogs and Videotapes. Hotdogs V

Question

s. owing table shows Tom's total utility from Hotdogs and Videotapes. Hotdogs Videotapes 14 24 32 38 100 120 134 144 3 a) Calculate Tom's marginal utility from hotdogs and videotapes b) If the price of hotdog is S2.00, calculate the marginal utility per dollar spent on hotdogs when Tom buys 2 hotdogs a week. c) Calculate Tom's marginal utility from the second videotape in the week. d) If the price of videotape is $4.00, calculate the marginal utility per dollar spent on videotapes when Tom buys 2 videotapes. e) When the price of hotdog is S2.00, the price of a videotape is $4.00, and Tom has S12.00 a week to spend, Tom buys 2 hotdogs and 2 videotapes. Does he maximize his total utility? Explain your answer.

Explanation / Answer

2.When price of hotdog is $2 and quantity is 2,then MU is 10.

MUx/Px=10/2=5

3.Tom's MU from the second tape is 20

4.When price is 4,MU/P=100/4=20

5.Equation of budget line=P1Q1+P2Q2=I

I=income

2*2+4*2=12

But MU1/P1 should also be equal to MU2/P2

But,MU2/P2>MU1/P1.Thus,the consumer is not maximizing his utility.He should increase consumption of tapes.

Quantity TU MU Quantity TU MU 0 0 - 0 0 - 1 14 14 1 100 100 2 24 10 2 120 20 3 32 8 3 134 14 4 38 6 4 144 10

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