You Have $5 to Spend on Any Combination of Goods

question 24

Essay

You have $5 to spend on any combination of goods A and B. The price of good A is $2 and the price of good B is $1. You have calculated the following utility values for yourself: $$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Units } & \mathrm { TU } _ { \mathrm { A } } & \mathrm { MU } _ { \mathrm { A } } & \mathrm { MU } _ { \mathrm { A } } / \mathrm { P } _ { \mathrm { A } } & \mathrm { TU } _ { \mathrm { B } } & \mathrm { MU } _ { \mathrm { B } } & \mathrm { MU } _ { \mathrm { B } } / \mathrm { P } _ { \mathrm { B } } \\\hline 0 & 0 & & & 0 & & \\\hline 1 & 16 & & & 30 & & \\\hline 2 & 30 & & & 50 & & \\\hline 3 & 40 & & & 58 & & \\\hline 4 & 46 & & & 64 & & \\\hline\end{array}$$ (a) Fill in the empty columns of the table.
(b) You have purchased 2 units of good A and 1 unit of good B. Are you maximizing your utility? If so, explain why. If not, what combination of goods should you buy?

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Definitions:

Revenue Recognition

The accounting principle that dictates the specific conditions under which income becomes recognized as revenue in the financial statements.

Secondary Characteristics

Refers to the additional properties or features of a financial instrument, entity, or market mechanism that support its primary functions.

Accounting Information

Data related to the financial transactions and status of an organization, used for analysis, decision making, and financial reporting.

Representational Faithfulness

A concept in accounting that assets and transactions are recorded and reported in a manner that accurately reflects economic reality.