Answer Happy

3. Finding the optimal combination of two goods Larry enjoys consuming both pop and coffee. Each can of pop costs Ps= S1, and each cup of coffee costs Pc = $2. Suppose that Larry buys 30 can: of pop and 20 cups of coffee per week. The following graphs show his marginal utility curves for pop and coffee. At his current consumption level, Larry's marginal utility from consuming the last can of pop he bought is MUS = 12 utils per can, and his marginal utility from consuming the last cup of coffee he bought is MUC = 12 utils per cup. MU OF POP (Utils per can) 24 20 16 12 0 10 20 30 POP (Cans) 40 50 60 MU OF COFFEE (Utils per cup) 24 20 0 0 10 Slope: -0.20 Y-Intercept: 16.00 20 40 COFFEE (Cups) 30 50 60

Is Larry currently maximizing his utility? For each of the following combinations of pop and coffee, calculate the marginal utility per dollar from the last can of pop and the last cup of coffee. Then, use the dropdown menus in the last column to indicate which of the combinations satisfy the condition for consumer equilibrium. No; he could buy more pop and less coffee, not spend any more money, and be better off. No; he could buy less pop and more coffee, not spend any more money, and be better off. No; he likes coffee and pop more than other goods, so he should buy more of both. Yes; the marginal utility he receives from his last can of pop equals that of his last cup of coffee. Combination A B D (Cans) 20 40 30 50 Pop MU P₁ (Cups) 30 20 30 40 Coffee MUC Pe Consumer Equilibrium? Suppose Larry has a "caffeine budget" of $130 per week, which he spends on pop and coffee. To maximize his utility, Larry will purchase of pop and cups of coffee per week. car