Sub: Economics

Topic: Micro Economics

Question: Deriving the marginal utility from consumption of goods and services for different prices and levels of consumption, as well as the optimal allocation of a budget.
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Optimal Expenditure. Consider the following data: Services (S) Goods (G) Units 1 2 3 4 5 Total Utility 150 285 405 480 525 Units 1 2 3 4 5 Total Utility 95 185 270 345 400

A. Construct a table showing the marginal utility derived from the consumption of goods and services. Also show the trend in marginal utility per dollar spent (the MU/P ratio) if PG = $30 and PS = $20. B. If two units of goods are consumed, what level of services consumption could also be justified? C. If four units of services are consumed, what level of goods consumption could also be justified? D. What is the optimal allocation of a $150 budget?
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Sub: Economics

Topic: Micro Economics

Solution:
A) Goods Units 1 2 3 4 5 TU 150 285 405 480 525 MU(G) 135 120 75 45 MU/P ratio (G) 4.5 4 2.5 1.5 Units 1 2 3 4 5 Service TU 95 185 270 345 400 MU(S) 90 85 75 55 MU/P ratio (S) 4.5 4.25 3.75 2.75

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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for
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Sub: Economics

Topic: Micro Economics

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*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for
submitting the same in lieu of your academic submissions for grades.

Sub: Economics

Topic: Micro Economics

(B) If two units of goods are consumed, the service consumption would also be two units, because the marginal utility per dollar spent is equal for both. (C) If four units of services are consumed; the goods consumption will be zero, because after consuming the service he will be having just $20 remaining. And, the given price of the good per unit is $30. So he couldnt buy any goods after consuming the Service. (D) Three units of goods and three units of services will be the optimal level of consumption when the consumer is spending $150, because at this point the consumer is getting maximum satisfaction with given income. ** End of the Solution **
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submitting the same in lieu of your academic submissions for grades.