Each week tom wu buys two hamburgers at $2 each, eight cokes at $0.50 each, and eight slices of pizza at $1 each, but he buys no hot dogs at $1.50 each. what can you deduce about tom’s marginal utility for each of the four goods?
Answers
Answer:
Tom’s marginal utility is a function of the need or preference he has for the items as well as the price he must pay for each. We know how much money he is willing to spend on food and drink, and we know how he allocates this money. We assume that by the choices he makes, he is maximizing his utility from his purchases. The food items (hamburgers, pizza-slices, and hot-dogs) are substitute goods, and the drink item (coke) is as complementary good. Hamburgers: A third hamburger would provide Tom with less utility than any of the other items he buys. That is why he stops at two hamburgers. He values hamburgers, but at the current price he is willing to buy only two. Pizza: The eight slice of pizza provides Tom with the least utility he is willing to accept for any food item. He buys more slices of pizza and spends more money on them than on hamburgers. This may be due because he enjoys pizza more than hamburgers, or maybe buying more pizza (which is cheaper than hamburgers) allows him a greater utility for the entire week. Hot-Dog: It is clear that Tom is not willing to buy any hot-dogs at the given price. A first hot-dog would provide Tom with less utility than his...
Explanation:
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