Assignment: Consumption and Utility Theory
Instructions
After reviewing the study material for this module, answer the following exercise. What is intended is that you can demonstrate with your answers the knowledge you have of the theory of consumption and utility.
Practical exercise
Carlos has $40.00 to spend a week on lunches and glasses of wine. The price of each lunch is $8.00 and the price of each glass of wine is $4.00.
The following table presents Carlos's total utility related to lunches and glasses of wine.
|
Quantity per week
|
utility for lunch
|
Quantity per week
|
Utility per glass of wine
|
|
0
|
0
|
0
|
0
|
|
1
|
65
|
1
|
55
|
|
2
|
105
|
2
|
103
|
|
3
|
137
|
3
|
139
|
|
4
|
165
|
4
|
163
|
|
5
|
191
|
5
|
185
|
|
6
|
215
|
6
|
205
|
|
7
|
237
|
7
|
218
|
|
8
|
257
|
8
|
228
|
|
9
|
274
|
9
|
235
|
|
10
|
290
|
10
|
240
|
A. Identify the marginal utility and the marginal utility per dollar when Carlos buys 5 lunches a week.
B. Identify the marginal utility and the marginal utility per dollar when Carlos buys 7 glasses of wine per week.
C. Identify the quantities of lunches and glasses of wine that Carlos should be able to buy with his $40.00 and how much would be his maximum total utility that he achieves per week.
D. If the price of each lunch is $4.00 and the price of each glass of wine is $4.00, identify the quantities of lunches and glasses of wine that Carlos should be able to buy with his $40.00 and how much would be his maximum total profit per week?
E. Name two points on Carlos's lunch demand curve.