Answer to Question #197310 in Microeconomics for Amahle Ndlovu

Question

15. Suppose Anna has R5 pocket money to spend on cookies and rusks. Both cookies and rusks cost R1 each at the local bakery. The following table presents Anna’s total utilities of cookies and rusks respectively. Use the information provided and indicate which one of the following statements is correct. Units Total utility from cookies Total utility from rusks 0 0 0 1 10 14 2 18 24 3 24 32 4 28 38 [1] When spending her total pocket money of R5 on cookies and rusks, Anna is in equilibrium when she buys two cookies and two rusks. [2] Anna will be in equilibrium if her total utility is equal to 66 utils. [3] When spending her total pocket money of R5 on cookies and rusks, Anna is in equilibrium when she buys two cookies and three rusks. [4] If the price of cookies increases to R1,50, Anna will buy more cookies and fewer rusks.

Answer 1

Solution:

The correct statement is:

3. When spending her total pocket money of R5 on cookies and rusks, Anna is in equilibrium when she buys two cookies and three rusks.

 

At this point, the marginal utility of cookies is equal to the marginal utility of rusks while spending the total pocket money of R5.

This is depicted by the below table: