Consumption and utility theory

Practical exercise:

1) Carlos has $ 40.00 to spend a week on lunches and wine glasses. The price of each lunch is $ 8.00 and the price of each glass of wine is $ 4.00.

The following table presents Carlos' total utility related to lunches and wine glasses.

Amount per week/Profit for lunch/Amount per week/Profit per glass of wine 0 0 0 0 1 65 1 55 2 105 2 103 3 137 3 139 4 165 4 163 5 191 5 185 6 215 6 205 7 237 7 218 8 257 8 228 9 274 9 235 10 290 10 240 

a. Identify the marginal profit and the marginal profit per dollar when Carlos buys 5 lunches a week.

b. Identify the marginal profit and the marginal profit per dollar when Carlos buys 7 glasses of wine a week.

c. Identify the amounts of lunches and wine glasses Carlos should be able to buy with his $ 40.00 and how much would be his maximum total profit reaching a week.

d. If the price of each lunch is $ 4.00 and the price of each glass of wine is $ 4.00, identify the amounts of lunches and glasses of wine that Carlos should be able to buy with his $ 40.00 and how much would be his maximum total profit reaching the week .

e. Name two points on Carlos' lunch demand curve.