Utility maximizing
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Intros
Lessons
- Utility Maximizing Overview:
- Using a Spreadsheet
- List all the possible combination of goods
- Find the total utility of each
- Add the utilities
- Find the highest total utility
- An Example
- Choosing the Margin
- Marginal utility per dollar of good x
- Marginal utility per dollar of good y
- Setting them equal
- An Example
Examples
Lessons
- Understanding Method 1: Using a Spreadsheet
Pencils are $2 each, and erasers are $4 each. Suppose you have an income of $12, and the utility you gain from each good is shown in this table:
Quantity (per pencil)
Total Utility
Quantity (per eraser)
Total Utility
0
0
0
0
1
50
1
40
2
80
2
75
3
90
3
95
4
100
4
110
5
105
5
120
6
107
6
125
Use a spreadsheet to find the choice which maximizes utility. - Candy are $4 each, and Chocolate are $8 each. Suppose you have an income of $16, and the utility you gain from each good is shown in this table:
Quantity (per candy)
Total Utility
Quantity (per chocolate)
Total Utility
0
0
0
0
1
35
1
50
2
65
2
90
3
85
3
120
4
100
4
130
5
110
5
135
6
115
6
137
Using a spreadsheet to find the choice which maximizes utility.