Caroline has a $10 dessert budget that she uses to buy pie and cake. Assume the price of pie (Pp) is fixed at $2. Table A shows Caroline's marginal utility (MU) and marginal utility per dollar () she receives from the first through fifth slices of pie she buys each week. Table B shows the same MU information for cake when the price of a slice of cake (Pc) is either $4 or $2. Assume that Caroline is a rational consumer who wants to maximize her utility. Table A Pie MU MU/P (Slices) (Utils) (If P=2) 30 15 1 24 12 20 10 3 14 7 4 6 3 Table B Cake MU MU/P (Slices) (Utils) (If P=$4) (If P=$2) 40 10 20 1 32 8 16 24 6 12 16 4. 8 4. 4. 2 AAAAA
Caroline has a $10 dessert budget that she uses to buy pie and cake. Assume the price of pie (Pp) is fixed at $2. Table A shows Caroline's marginal utility (MU) and marginal utility per dollar () she receives from the first through fifth slices of pie she buys each week. Table B shows the same MU information for cake when the price of a slice of cake (Pc) is either $4 or $2. Assume that Caroline is a rational consumer who wants to maximize her utility. Table A Pie MU MU/P (Slices) (Utils) (If P=2) 30 15 1 24 12 20 10 3 14 7 4 6 3 Table B Cake MU MU/P (Slices) (Utils) (If P=$4) (If P=$2) 40 10 20 1 32 8 16 24 6 12 16 4. 8 4. 4. 2 AAAAA
Chapter21: Demand: Consumer Choic
Section: Chapter Questions
Problem 16E
Related questions
Question
Transcribed Image Text:Caroline has a $10 dessert budget that she uses to buy pie and cake. Assume the price of pie (Pp) is fixed at $2. Table A shows Caroline's marginal
MU
utility (MU) and marginal utility per dollar () she receives from the first through fifth slices of pie she buys each week. Table B shows the same
information for cake when the price of a slice of cake (Pc) is either $4 or $2. Assume that Caroline is
rational consumer who wants to maximize her
utility.
Table A
MU/P
(If P=2)
Pie
MU
(Slices)
(Utils)
30
15
1
24
12
20
10
14
7
Table B
Cake
MU
MU/P
(Slices)
(Utils)
(If P=$4)
(If P=$2)
40
10
20
32
8
16
2
24
12
16
4
8
4
1
2.
96
4.
4 5
1.
Transcribed Image Text:If the price of a slice of cake is $4, the price of a slice of pie is $2, and Caroline spends her entire budget of $10, she will choose to buy
of pie and
of cake.
Now, suppose that cake goes on sale, and its price decreases to $2. Caroline's utility is now maximized if she buys
of pie and
of cake.
Suppose the price of pie is fixed at $2, and Caroline's budget is fixed at $10.
On the graph, use the blue line (circle symbols) to plot Caroline's demand for cake. Do this by placing one blue point (circle symbol) on Caroline's
demand for cake when the price is $4 and the second blue point on Caroline's demand for cake when the price is $2.
Caroline's Demand
PRICE (Dollars per slice)
4)
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