question archive Lilly Davis has $5 per week to spend on any combination of ice cream and candy
Lilly Davis has $5 per week to spend on any combination of ice cream and candy
Subject:FinancePrice: Bought3
Lilly Davis has $5 per week to spend on any combination of ice cream and candy. The price of an ice cream cone is $2 and the price of a candy bar is $1. The table below shows Lilly’s utility values. Use the table to answer the questions that follow the table.
|
Quantity of Ice Cream Cones |
Total Utility |
Marginal Utility |
Marginal Utility per Dollar |
Quantity of Candy |
Total Utility |
Marginal Utility |
Marginal Utility per Dollar |
|
1 |
20 |
|
|
1 |
20 |
|
|
|
2 |
38 |
|
|
2 |
34 |
|
|
|
3 |
52 |
|
|
3 |
48 |
|
|
|
4 |
62 |
|
|
4 |
54 |
|
|
a) Complete the table by filling in the blank spaces.
b) Suppose Lilly purchases 2 ice cream cones and 1 candy bar. Is she consuming the optimal consumption bundle? If so, explain why. If not, what combination should she buy and why?
c) Suppose the price of an ice cream cone drops to $1, do you expect Lilly to buy more or fewer candy bars than before? Why?
