Exam_2_Review_Sheet_Problem_Answers - Exam #2 Review...

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Exam #2 Review Problems Answers: Sample Problems: (1) Refer to the following MU table: Q ua nti tie s of M r. Pi bb Q ua nt iti es of re d vi ne s 1 2 1 3 2 1 2 2 3 1 3 1 4 1 4 4 If you have a budget of $8, a Mr. Pibb is $1 and a box of red vines is $2. How much of each will you buy to maximize your total utility? ANSWER: Compare the first Mr. Pibb with the first box of red vines, 20/$1 >30/$2 – buy the Mr. Pibb. Then compare the second Mr. Pibb with the first box of red vines, 16/$1 > 30/$2 – buy the second Mr. Pibb. Continuing on, compare the third Mr. Pibb with the first box of red vines, 12/$1 < 30/$2 – buy the first box of red vines. Then compare the third Mr. Pibb with the second box of red vines, 12/$1 > 20/$2 – buy the third Mr. Pibb. Then compare the fourth Mr. Pibb with the second red vine, 10/$1 = 20/$2 – you like both the same and since you have exactly $3 left you can afford both. This exhausts your money and you have bought 4 Mr. Pibbs and 2 boxes of red vines.
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This note was uploaded on 09/23/2008 for the course ECON 002 taught by Professor Mcleod,markpehlivan,ayseozg during the Fall '08 term at Pennsylvania State University, University Park.

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Exam_2_Review_Sheet_Problem_Answers - Exam #2 Review...

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