|
3. Again consider the information shown for Fred in the table to the right. Suppose the price of beer increases to $2 but his daily income remains $12. Fred's new optimal consumption bundle will be:
Fred's optimal consumption bundle must satisfy the same two conditions as before:
1. It must cost exactly $12
2. The ratio of Marginal Utilities must equal the ratio of prices.
After the increase in the price of beer both goods cost $2 so their marginal utilities must be equal, and the bundle must cost $12. The bundle with 4 brats and 2 beers costs exactly $12 and the marginal utility of each good is equal to 10 so this is his optimal bundle at the new prices.
|
| Fred's Marginal Utility |
| Q |
MU Brats |
MU Beer |
| 1 |
16 |
11 |
| 2 |
14 |
10 |
| 3 |
12 |
9 |
| 4 |
10 |
8 |
| 5 |
8 |
7 |
| 6 |
6 |
6 |
| 7 |
4 |
5 |
| 8 |
2 |
4 |
|
