Homework Answers
| Quantity | Total Utility | Marginal Utility | MUL/PL | Quantity | Total Utility | Marginal Utility | MUPB/PPB |
| 0 | 0 | -- | -- | 0 | 0 | -- | |
| 1 | 14 | 14 | 7 | 1 | 100 | 100 | 25 |
| 2 | 24 | 10 | 5 | 2 | 120 | 20 | 5 |
| 3 | 32 | 8 | 4 | 3 | 134 | 14 | 3.5 |
| 4 | 38 | 6 | 3 | 4 | 144 | 10 | 2.5 |
Marginal Utility = Change in Total Utility / Change in Quantity
MUL/PL = Marginal utility of lattes / Price of latte
MUPB/PPB = Marginal utility of Paperback books / Price of Paperback book
Utility is maximized where these following two conditions are fulfilled.
- MUL/PL = MUPB/PPB
- Fulfilling the budget equation
So from the above table MUL/PL = MUPB/PPB at 2 units of Lattes and 2 units of Paperback books.
Now we will check whether it is fulfilling the budget equation or not?
Budget equation
2L x 4PB = 12
Where
L = Units of Lattes
PB = Units of Paperback books
At 2 units of Lattes and 2 units of Paperback books.
2(2) x 4(2) = 12
4 + 8 = 12
Hence this bundle is fulfilling the budget equation.
Jerry maximizes his total utility when he buys 2 lattes and 2 paperbacks a week
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