# CH 7 EX 3 & 4 - c Check your answers by substituting...

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7-3 ( Key Question ) Columns 1 through 4 in the table below show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are \$18, \$6, \$4, and \$24, respectively, and that Ricardo has an income of \$106. Column 1 Column 2 Column 3 Column 4 Column 5 Units of A MU Units of B MU Units of C MU Units of D MU No. of \$ saved MU 1 2 3 4 5 6 7 8 72 54 45 36 27 18 15 12 1 2 3 4 5 6 7 8 24 15 12 9 7 5 2 1 1 2 3 4 5 6 7 8 15 12 8 7 5 4 3.5 3 1 2 3 4 5 6 7 8 36 30 24 18 13 7 4 2 1 2 3 4 5 6 7 8 5 4 3 2 1 1/2 1/4 1/8 a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many dollars will Ricardo choose to save?
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Unformatted text preview: c. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule. 7-4 ( Key Question ) You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is \$9 and the prices of X and Y are \$2 and \$1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to \$1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (price-quantity-demanded table) for X. Units of X MU x Units of Y MU y 1 2 3 4 5 6 10 8 6 4 3 2 1 2 3 4 5 6 8 7 6 5 4 3...
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