Option 1
John gets a weekly allowance of $20 from his parents. The only thing he has a real interest in
buying is a big slice of pizza after school for $2 per slice. Below shows his marginal utility for
each slice consumed.
Number of Pizza Slices Marginal Utility per Pizza Slice Marginal Utility Per Funnel Cake
1 20 50
2 12 40
3 10 32
4 6 20
5 2 12
6 0 0
7 -2 -12
8 -6 -20
a) What is the optimal quantity of pizza slices for John to buy? Explain.
John should buy 5 slices of pizza because at that point, he gets the most value for his money. The
5th slice gives him $2 worth of satisfaction, which is the same as the price of a slice.
b) If John purchased eight slices, what total utility would he enjoy?
John's total utility from purchasing 8 slices would be 44, calculated by adding 20 percentage
points from the first slice, 12 points from the second, 10 points from the third, 6 points from the
fourth, 2 points from the fifth, 0 points from the sixth, -2 points from the seventh, and -6 points
from the eighth.
c) The school starts selling funnel cakes for $4, which John discovers offers the marginal utility
per cake shown on the same table. Complete a table that shows the marginal utility per dollar for
each slice of pizza and cake (in separate columns).
# slices Marginal Utility MU pizza per $1 Marginal Utility MU funnel cake
$2 per pizza $4 per funnel per $1
cake
1 20 10 50 12
2 12 6 40 10
3 10 5 32 8
4 6 3 20 5
5 2 1 12 3
6 0 0 0 0
7 -2 -1 -12 -3
8 -6 -3 -20 -5
d) Assuming John's parents do not allow him to use any savings, what is his optimal
consumption bundle of pizza and funnel cakes? Explain.
The optimal consumption bundle for John, given his budget constraint, would consist of 5 slices
of pizza and 4 funnel cakes, since the 5th slice of pizza and the 4th funnel cake offer the highest
marginal utility per dollar spent.
e) At John's optimal consumption bundle, what total utility will he gain?
John's optimal consumption bundle consists of 5 pizza slices and 4 funnel cakes, resulting in a
total utility of 82. The utility gained from each pizza slice and funnel cake is also provided.
