GE273.U6.

ProblemSet1-Instructor

Utility and Market Demand Curves

Problem 1.7, page 304 Award up to 100 points.
Joe will maximize his utility if he spends his $16 so that the marginal utility of Twinkies
divided by the price of Twinkies is equal to the marginal utility of Ho-Hos divided by the price
of Ho-Hos. Joe will maximize utility by buying four packs of Twinkies and six packs of Ho-Hos. At
this combination, the marginal utility of each good divided by its price equals 4.

Problem 2.5, page 305 Award up to 100 points.

Price
$1.75
$1.50
$1.25
$1.00
$0.75

Josh
2
4
6
7
9

Daisuke
1
3
4
6
7

Tim
0
2
3
4
5

Market
3
9
13
17
21