Answer to Question #188419 in Microeconomics for Rida Awwal

Question

Consider a consumer of goods A, B, and C. PA =2, PB=6 and PC=10, on the basis of the hypothetical data given below, determine the optimum of the consumer when the income of the consumer is birr 130.

Quantity demand

MUA

MUB

MUC

1

24

120

140

2

22

110

120

3

20

96

100

4

18

80

100

5

16

64

60

6

14

48

50

7

12

42

36

8

10

36

20

9

8

30

6

10

6

24

2

Based on the above given find: -

A.The optimum combination of quantity

B.Calculate total utility (TU) at optimum combinations

Answer 1

Solution:

A.). The optimum combination of quantity:

The optimum combination of quantity are as follows:

Good A = 8

Good B = 9

Good C = 6

This can be verified as follows:

Total income = (P_A x 8) + (P_B x 9) + (P_C x 6)

130 = (2 $\times$ 8) + (6 $\times$ 9) + (10 $\times$ 6)

130 = 16 + 54 + 60

130 = 130

 

B.). Calculate Total Utility (TU) at optimum combinations:

TU = 136 + 626 + 570 = 1,332

Total Utility (TU) at optimum combinations = 1,332