Answer to Question #118742 in Microeconomics for Gurjas

Question

You have $10 to spend on a snack and decide to go to Taco Bell. Putting your newly acquired economics knowledge to use, you have developed the following table to assist with your purchase decision:

Double Decker Tacos
(P = $1) Chicken Burrito Supremes
(P = $2)
Q TU MU MU/P Q TU MU MU/P
0 0 0 0
1 20 1 28
2 34 2 46
3 44 3 54
4 48 4 56
5 48 5 56
6 42 6 52

(a) Fill in the missing values in the table above.
(b) If you bought 6 tacos and 2 burritos are you maximizing your utility? Explain.
(c) If your answer to part ‘b’ is ‘no’, what combination of tacos and burritos would maximize your utility? What is your maximum total utility?

Answer 1

(a) Fill in the missing values in the table above. 

The total utility (TU) is the maximum amount of satisfaction obtained through consumption of a commodity. The marginal utility (MU) is defined as the additional utility obtained by consumption of an extra unit of commodity. It is computed by getting the difference of in the total utility by consumption of an additional quantity. Thus,

$MU = \varDelta TU / \varDelta Q$

The marginal utility divided by the price (MU/P) gives the unit marginal price given the unit prices. It is obtained by dividing the Marginal Utility (MU) and the Price (P).i.e. (MU/P) 

The graph shows the different combination of quantities of commodities of Double Decker Tacos and Chicken Burrito Supremes that would render certain utility. 

(b) If you bought 6 tacos and 2 burritos are you maximizing your utility? Explain.

Total utility is maximized at the point where marginal utility (MU) is equal to 0 (MU=0). Buying 6 tacos and 2 burritos is not maximizing utility since the marginal utility is not zero.

(c) If your answer to part ‘b’ is ‘no’, what combination of tacos and burritos would maximize your utility? What is your maximum total utility?

Total Utility is maximized at the point where the marginal utility is equal to zero (MU=0). The combination that maximizes total utility is (Double Decker Tacos (DDT=5), Chicken Burrito Supremes (CBS=0). The maximum total utility at this point is equal to Double Decker Tacos (DDT=48), Chicken Burrito Supremes (CBS=56).