{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

This preview shows pages 1–2. Sign up to view the full content.

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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}