Question 3 33 points Answer the following questions using th

Question 3 [33 points] Answer the following questions using the following information. Columns 1 and 2 in the table below show the marginal utility that Cody gets by purchasing products A and B Column 3 shows the marginal utility Cody gets from saving. Assume that the price of A is $4, the price of B is $10, and Cody has an income of $118 a) Find the following series of MUI$ for each column. Note: Keep as much precision as possible during your calculations. Your final answer should be accurate to at least two decimal places Column 1 Column 2 Column 3 Units of A MU MU/S Units of B MU MU/$ Number of $ saved MU MU/S 68 60 55 13.75 49 12.25 41 10.25 36 31 7.75 24 17 15 74 7.4 65 6.5 58 5.8 51 5.1 42 4.2 37 3.7 28 2.8 23 2.3 2 2 4 5 6 b) What quantities of A and B will Cody purchase in maximizing his utility? Quantity of A: 0 Quantity of B: 0 c) How many dollars will Cody save? Dollars Saved $0

Solution

Ans b)

Cody has income of $18 and price of A & B is $4 and $10 respectively

Now Cody any how can afford only 1 unit of B atmost and can enjoy a utility of 74 units whereas if she consumes 2 units of A with remaining Dollars she will have total MU equals to 68+60+74=202

Therefore Cody should consume 2 units of Quantity A and 1 unit of Quantity B

Ans c)

Dollars saved by Cody is $0 because she will not be able to maximise her utility if she saves any dollar

A	B	Dollar Saved
UnitA	MU	MU/$	UnitB	MU	MU/$	Unit	MU	MU/$
1	68	68.0	1.0	74.0	74.0	1.0	9.0	9.0
2	60	30.0	2.0	65.0	32.5	2.0	6.0	3.0
3	55	18.3	3.0	58.0	19.3	3.0	3.0	1.0
4	49	12.3	4.0	51.0	12.8	4.0	1.0	0.3
5	41	8.2	5.0	42.0	8.4	5.0	1.0	0.2
6	36	6.0	6.0	37.0	6.2	6.0	1.0	0.2
7	31	4.4	7.0	28.0	4.0	7.0	1.0	0.1
8	24	3.0	8.0	23.0	2.9	8.0	1.0	0.1