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16 February, 20:56

2. John likes coffee and cookies. The price for one cup of coffee is $1; the price for one cookie is $1. His marginal utility for coffee is 10 - x, where x is the amount of coffee. His marginal utility for cookies is 21 - 2 y, where y is the number of cookies. How many cups of coffee and units of cookies will John buy if he has only $10

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  1. 16 February, 21:20
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    3 cups of Coffee and 7 units of cookies

    Explanation:

    In order to maximize his utility John will satisfy the following relationship

    The Rational Spending Rule for two goods, X and Y:

    MUX/PX = MUY/PY

    10 - x = 21 - 2y

    10 - 21 + 2y = x

    x = 2y - 11 ... equation (1)

    A budget line shows combinations of two goods a consumer is able to consume, given a budget constraint. Here John's constraint is $10,

    we have, cups of coffee (x) + units of cookies (y) = $10

    x + y = 10

    We substitute X with the value of x in equation (1)

    (2y - 11) + y = 10

    2y + y = 10 + 11

    3y = 21

    y = 7.

    y is the number of cookies, therefore y = 7 units

    x = 2y - 11 = 2 * 7 - 11 = 14 - 11 = 3

    x is the amount of coffee, therefore x = 3 cups.

    If John has $10 he will 3 cups of Coffee and 7 units of cookies
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Home » Business » 2. John likes coffee and cookies. The price for one cup of coffee is $1; the price for one cookie is $1. His marginal utility for coffee is 10 - x, where x is the amount of coffee.
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