You are reviewing your monthly budget and determine you have $60.00 to spend on
ID: 1092715 • Letter: Y
Question
You are reviewing your monthly budget and determine you have $60.00 to spend on either books or movies each month. (Remember you must have whole numbers, not fractions) The books cost $8.00 and the movies cost $20.00. Put this into equation form. Complete the following Total Utilities table.
Books
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
50
1
80
2
100
3
110
4
Movies
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
22
1
42
2
52
3
57
4
Using the equation created above, solve to locate four points and plot them on a budget constraint line. Create the graph in Excel and paste onto your Word document answering the questions below. Review the tutorial on creating graphs in Week 01 if you run into any problems.
Write a one page response answering the following questions about your graph and tables:
1. How many books and movies would maximize your level of satisfaction given the budget of $60.00?
2. Are the charts above consistent with the Law of Diminishing Marginal Utility? Why or Why not?
3. What is the consumer surplus of purchasing three books?
4. If you were able to go to the matinee for movies at a price of $10.00 instead, how would this change the amount of books and movies you could purchase?
Books
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
50
1
80
2
100
3
110
4
Movies
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
22
1
42
2
52
3
57
4
Explanation / Answer
Books
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
50
1
80
2
100
3
110
4
Movies
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
22
1
42
2
52
3
57
4
1. Given the budget constraint we will purchase 4 books and 1 movie at a total cost of $52 and derive a utility of 132 from it.
2. Yes, the charts are consistent with the law of dimnishing marginal utility, as we can see than in both the tables the marginal utility from an additional unit consumed decrease as the amount consumed increases for both books and movies.
3. If we purchase 3 books we pay a total of $24 and derive a utility of 100. Assuming that the utility is given in $, we can say that surplus = utility received - cost = $100 - $24 = $76
4. If the price of movie changes to $10 then the marginal utility of movie per dollar spent becomes double. At this scenario we will consume a total of 4 books and 2 movies at the cost of $52 and derive a utility of 152.
Books
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
50
1
50 6.2580
2
30 3.75100
3
20 2.5110
4
10 1.25Movies
Total Utility
Quantity
Marginal Utility
Marginal Utility Per $
22
1
22 1.142
2
20 152
3
10 0.557
4
5 0.25Related Questions
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