Question

Quantity of Bottles of Soda	Total Utility	Marginal Utility	Quantity of Pizzas	Total Utility	Marginal Utility
1	16	16	1	30	30
2	30	14	2	46	16
3	42	12	3	61	15
4	52	10	4	75	14
5	60	8	5	88	13
6	66	6	6	100	12
7	70	4	7	111	11

You are deciding how many bottles of soda and pizzas to purchase for an upcoming pizza party. You decide to make a utility schedule and determine the utilities for differing amounts of bottles of soda and pizza as shown above. If the price of a bottle of soda is $2 and the price of a pizza is $3, how many of bottles of soda should you purchase for your pizza party if you have a budget of $28 for both items?

Answer 1

Law of equi Marginal utility states that consumer will consume that bundle of good where MUx/Px=MUy/Py and which satisfy the budget condition.

MUsoda/Psoda= 4 When Qsoda= 5

MUpizza/Ppizza=4 when Qpizza=6

Budget constraint:

Psoda*Qsoda+ Ppizza*Qpizza= 28

$2*5+$3*6= $28=$28

Budget constraint is also satisfied.

So consumer will buy 5 bottles of soda and 6 pizza.

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