21 Jul HOW SHOULD MARIA ALLOCATE HER $16 BETWEEN EGGS AND MILK SO AS TO ACHIEVE MAXIMUM UTILITY?
Suppose Marias preferences for eggs and milk can be described by the following marginal utility sch Show more Suppose Marias preferences for eggs and milk can be described by the following marginal utility schedules. Both eggs and milk cost $4; Maria has allocated $16 to the purchase of these two products. [Use a table to show your calculations] Eggs Milk Units of Product Marginal Utility Marginal Utility First 24 36 Second 20 30 Third 16 24 Fourth 12 18 Fifth 8 12 Sixth 4 6 a. How should Maria allocate her $16 between eggs and milk so as to achieve maximum utility? b. Verify that the marginal utility per dollar of each good is the same at the utility maximizing bundle. c. Suppose the price of eggs falls to $2. By comparing the marginal utility per dollar of her current purchases of eggs and milk should Maria purchase more eggs more milk or does her current bundle still maximize her utility? d. Assuming Maria still allocates $16 between the two goods what amounts of eggs and milk maximize her utility at these new prices? e. From the exercises above list two price/quantity combinations that lie on Marias demand curve for eggs. Show less
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