Download (a) The table above shows Theresa`s marginal utility from bagels

Consumer Maximization
When discussing diminishing marginal utility, students should identify the consumer maximizing combination of goods,
based on marginal utility and price of the output.
Consumer maximization is achieved, with a given budget, when the marginal utility of productAdivided by the price ofA
is equal to the marginal utility ofB divided by the price of B.
MUA/PA = MUB/PB
Theresa consumes both bagels and toy cars.
Quantity of Bagels Marginal Utility from Bagels (utils) Quantity of Toy Cars Marginal Utility from Toy Cars
1
8
1
10
2
7
2
8
3
6
3
6
4
5
4
4
5
4
5
3
6
3
6
2
Car 1: Marginal Utility 10
(a) The table above shows Theresa’s marginal utility from bagels and toy cars.
(i) What is her total utility from purchasing three toy cars?
Answer: 24.
Car 2: Marginal Utility 8
Car 3: Marginal Utility 6
(10+8+6)
(ii) Theresa’s weekly income is $11, the price of a bagel is $2, and the price of a toy car is $1. What quantity of bagels
and toy cars will maximize Theresa’s utility if she spends her entire weekly income on bagels and toy cars? Explain your
answer using marginal analysis.
Answer: 3 Bagels 5 Cars
Best Explanation
Acceptable Explanation
Marginal Utlity of Bagels#3 is 6 / Price 2 = 3
If you add the MARGINAL Utility of 3
Bagels 8+7+6 and the Marginal Utility of
5 cars 10+8+6+4+3 you get the maximum
total of 55 Utility.
Marginal Utility of Car #5 is 3 / Price 1 = 3
Since these are equal (3=3) this is Maximized
Utility
*You have to say word Marginal
because its in the question!*
As for the "Next Question" I said you could try. If price of Resource Imputs of Bagels goes up, Bagels Price will
also go up. This means Teresas demand for bagels will decrease because the Marginal Utility of Bagels / Price of Bagels
will go down. So she will spend less money on Bagels and more on cars. ((This also goes with Unit 2 "Demand"))
--------------------Bonus Problem:
Now sometimes a Problem will tell you something like this: Assume Theresa’s income increases to $16, and
she purchases 6 bagels and 4 toy cars. Given her current income, is this an optimum bundle of bagels and toy cars? If
not,should Theresa buy more bagels and fewer toy cars or fewer bagels and more toy cars
Answer: Teresa should buy more cars and fewer bagels with her $16
Remember Goal is MUA/PA = MUB/PB
At 6 Bagels/4 Cars you get 3(Bagels)/2$ < 4(Cars)/1$
So 3/2 < 4/1 means buy less bagels and more cars.
Hint: Pacman!
Whenever Pacman < shows up Pacman is hungry and always wants to
eat more of the one his mouth is aiming for! When Pacman is full he doesn't
show and there is only an = sign!