Suppose Saron has 7 Birr to be spent on two goods: banana and bread. The unit price of banana is 1 Birr and the unit price of a loaf of bread is 4 Birr. The total utility she obtains from consumption of each good is given below. Table 3.2: Utility schedule for two commodities Income = 7 Birr, Price of banana = 1 Birr, Price of bread = 4 Birr Banana Bread Quantity TU MU MU/P Quantity TU MU MU/P 0 0 - - 0 0 - - 1 6 6 6 1 12 12 3 2 11 5 5 2 20 8 2 3 14 3 3 3 26 6 1.5 4 16 2 2 4 29 3 0.75 5 16 0 0 5

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Question:

Suppose Saron has 7 Birr to be spent on two goods: banana and bread. The unit price of banana is 1 Birr and the unit price of a loaf of bread is 4 Birr. The total utility she obtains from consumption of each good is given below. Table 3.2: Utility schedule for two commodities Income = 7 Birr, Price of banana = 1 Birr, Price of bread = 4 Birr Banana Bread Quantity TU MU MU/P Quantity TU MU MU/P 0 0 - - 0 0 - - 1 6 6 6 1 12 12 3 2 11 5 5 2 20 8 2 3 14 3 3 3 26 6 1.5 4 16 2 2 4 29 3 0.75 5 16 0 0 5 31 2 0.5 6 14 -2 -2 6 32 1 0.25​

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Answer:Solution:A.p_x=3, G_x=\frac {100}{3}=33\frac{1}{3}p x =3,G x = 3100 =33 31 p_y=5, G_y=\frac{100}{5}=20p y =5,G y = 5100 =20B.100-0.25\times 100=75100−0.25×100=75p_x=3, G_x=\frac {75}{3}=25p x =3,G x = 375 =25p_y=5, G_y=\frac{75}{5}=15p y =5,G y = 575 =15C.p_x=6, G_x=\frac {100}{6}=16\frac{2}{3}p x =6,G x = 6100 =16 32 D.p_y=5, G_y=\frac{100}{4}=25p y =5,G y = 4100 =252.MU_x=68-60=8, p_x=2MU x =68−60=8,p x =2MU_y=29-25=4, p_y-?MU y =29−25=4,p y −?\frac {MU_x}{p_x}=\frac{MU_y}{p_y} p x MU x = p y MU y \frac{8}{2}=\frac {4}{p_y} 28 = p y 4 p_y=1p y =1

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