Maximizing Utility of Banana and Apples A consumer has a budget of Rs. 300 per month to
Question:
Maximizing Utility of Banana and Apples A consumer has a budget of Rs. 300 per month to spend on fruits. Bananas cost Rs. 20 per Kg and apples cost Rs. 100 per Kg. Suppose that the household’s preferences are given by the following total utility tab Count 1 2 3 4 5 6 7 TU from Apples 60 108 138 156 168 179 189TU from Banana 44 76 100 120 136 148 152First, graph the budget constraint with apples on the horizontal axis and banana on the vertical axis. Draw the budget line. Express the budget constraint as an algebraic equation for a line. Use the utility maximizing rule to identify the consumer equilibrium, that is, what combination of apples and banana will maximize total utility for the household. Confirm that the consumer equilibrium generates the highest combined total utility of any affordable combination of goods. E.g., compute the total utility of some other affordable combinations of apples and banana and compare with the consumer equilibrium
Microeconomics
ISBN: 9781464146978
1st edition
Authors: Austan Goolsbee, Steven Levitt, Chad Syverson