Question

Allen buys only beer and pizza. When the price of beer is $2.00 per bottle and the price of pizza is $10.00, Allen maximizes his total utility (satisfaction) by buying 5 beers and 4 pizzas. If the marginal utility of the 5th beer is 100 utils. What would be the marginal utility of the 4th pizza?

Answer 1

500 utils.

Step-by-step explanation:

Calculation to determine What would be the marginal utility of the 4th pizza

First step is to determine the Total utility maximized

Using this formula

Total utility maximized =Beer Marginal Utility/Price of beers =Pizza Marginal Utility/Price of pizza.

Let plug in the formula

Total utility maximized= 100 utils/$2.00 = Marginal Utility of pizza/$10.00.

Marginal Utility of beers = 100/$2

Marginal Utility of beers= 50 utils per dollar

Marginal Utility of pizza =50 utils per dollar

Now let determine the marginal utility of the 4th pizza

Hence,

50 = Marginal Utility of pizza/$10

Marginal Utility of pizza=50*$10

Marginal Utility of pizza= 500 utils.

Therefore What would be the marginal utility of the 4th pizza is 500 utils