John gets a weekly allowance of $20 from his parents. The only thing he has a real interest in buying is a big slice of pizza after school for $2 per slice. Below shows his marginal utility for each life consumed (see image).

a) What is the optimal quantity of pizza slices for John to buy? Explain. (For now, completely ignore the funnel cake column).

b) If John purchased 8 slices, what total utility would he enjoy?

c) The school starts selling funnel cakes for $4, which John discovers offers the marginal utility per cake shown on the same table. Complete a table that shows the marginal utility per dollar for each slice of pizza and each funnel cake (separate columns).

d) Assuming John’s parents do not allow him to use any savings, what is his optimal consumption bundle of pizza and funnel cakes? Explain.

e) At John’s optimal consumption bundle, what total utility will he gain?

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topeadeniran2 topeadeniran2 · Answer 1 · 2022-07-19T02:31:52+02:00

The optimal quantity of pizza slices for John to buy is 5 slices.

From the information given in the diagram, it can be seen that the marginal utility from the consumption of the 6th slice is zero.

In this case, the optimal quantity of pizza slices for John to buy is 5 slices.

When John buys 8 slices, the total utility will be:

= 20 + 12 + 10 + 6 + 2 + 0 - 2 - 6

= 42 utils.

When John’s parents do not allow him to use any savings, his optimal consumption bundle of pizza and funnel cakes is $20.

At John’s optimal consumption bundle, the total utility that he will gain will be:

= (20 + 12) + (50 + 40 + 32 + 20)

= 32 + 142

= 174 utils

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