Homework_4_Answers

Homework_4_Answers - Extra Credit Homework #4 Answers: (1)...

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Extra Credit Homework #4 Answers: (1) ($1000) You get the following utility (see the table below). You have $60 to spend for a party. What combination of pizzas should you buy in order to maximize your utility? Number of pizzas purchased Marginal Utility from Canyon Pizza ($8 large) Marginal Utility from Pizza Hut Pizza ($12 large) 1 16 24 2 12 12 3 8 8 4 4 6 5 2 4 ANSWER: Number of units purchased Marginal Utility from Canyon Pizza ($8 large) MU per dollar spent (Canyon Pizza) Marginal Utility from Pizza Hut ($12 large) MU per dollar spent (Pizza Hut) 1 16 16/$8 = 2.0 24 24/$12 = 2.0 2 12 12/$8 = 1.5 12 12/$12 = 1.0 3 8 8/$8 = 1.0 8 8/$12 = 0.67 4 4 4/$8 = 0.5 6 6/$12 = 0.50 5 2 2/$8 = 0.25 4 4/$12 = 0.33 You have $60 to spend so you try to get the highest MU per dollar spent. You do this by comparing the MU per dollar spent in the 3 rd and 5 th columns. Notice the values highlighted in BLUE . These values represent exactly $60 and they are also the highest MU per dollar spent (all of the values are 0.67 or higher in blue). The
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Homework_4_Answers - Extra Credit Homework #4 Answers: (1)...

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