Answered

Quantity of Tacos Total Utility Marginal Utility Quantity of Burritos Total Utility Marginal Utility 1 16 16 1 30 30 2 30 14 2 46 16 3 42 12 3 61 15 4 52 10 4 75 14 5 60 8 5 88 13 6 66 6 6 100 12 7 70 4 7 111 11 You go to a local resturant and are deciding how many tacos and burritos to order. The price of a taco is $2 and the price of a burrito is $3. You are really hungry and decide to spend no more than $28 in total for both tacos and burritos. If your utility schedule is like the one above, then how many burritos should you purchase

Answer :

Answer:

The quantity of burritos that should be purchased is 6.

Explanation:

Note: The data in this question are merged together. They are therefore sorted before answering the question. See the attached pdf file for the complete question with the sorted data.

The explanation to the answer is now given as follows:

Also note: See the attached excel file for the calculation of ratios of Marginal Utility to Price for Taco and Burrito.

The quantity of burritos to purchase by determining the point at which the ratios of Marginal Utility to Price of Taco and Burrito are equal.

In economics, utility from two or more goods is maximized at a point where the ratios Marginal Utility to Price of the two or more goods are equal.

For Taco and Burrito in the attached excel file in red color, utility is therefore maximized where we have:

Marginal Utility of Taco / Price of Taco =  Marginal Utility Burrito / Price of Burrito = 4.00

At this point,  Quantity of Taco is 5 while  Quantity of Burritos is 6.

At this point, the total budget of $28 is exhauted as it is equal to the total expenses on Taco and Burrico. This can be confirmed as follows:

Total expenses = (Quantity of Tacos * Price of Taco) + (Quantity of Burritos * Price of Burrito) = (5 * $2) + (6 * $3) = $10 + $18 = $28

Therefore, the quantity of burritos that should be purchased is 6.

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