RATIONAL_SHOPPING

RATIONAL_SHOPPING - Price of Pizza x Amount of Pizza 1. If...

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RATIONAL (utility-maximizing) SHOPPING THEORY Macaroni & Cheese (boxes) Pizza (12-inch pies) Price = $2 per box Price=$10 per pie Units Total Marginal MU per Total Marginal MU per Of item utility Utility $ Spent utility Utility $ Spent 1 50 50 25 80 80 8 2 58 8 4 130 50 5 3 62 4 2 170 40 4 4 64 2 1 190 20 2 5 64 0 0 200 10 1 6 62 -2 -1 200 0 0 7 52 -10 -5 160 -40 -4 CONSUMER’S BUDGET CONSTRAINT Income ($) = Price of Mac. x Amount of Mac. +
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Unformatted text preview: Price of Pizza x Amount of Pizza 1. If goods were FREE of CHARGE , how much should be consumed ? (5 Mac. , 6 Pizza). Why not 7 Mac. and 7 Pizza ? 2. With income of $34 and prices of $2 and $10 , how much should be consumed ? (2 Mac. , 3 Pizza ) Note that MU/P = 4 for both and $34 = $2x2 + $10x3. 3. Why not purchase 7 Mac. And 2 Pizza , since $34 = $2 x 7 + $10 x 2 ? This would imply COMBINED utility of 182 , much lower than the prior 228 !...
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This note was uploaded on 04/29/2008 for the course ECON 2010 taught by Professor Mixon during the Spring '08 term at Auburn University.

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