Chen has an income of $325 to purchase jeans and shirts. The price of a pair of
ID: 1202187 • Letter: C
Question
Chen has an income of $325 to purchase jeans and shirts. The price of a pair of jeans is $25 and price of a shirt is $50. The table below contains the extra satisfaction she derived from buying these two goods.
Quantities MU of Jean Mu of Shirt
1 110 210
2 90 195
3 85 180
4 80 150
5 75 120
6 50 108
Suppose the price of the shirt decreases to $40, what is the new optimum choice?
Graph the derived demand curve and determine the equation of the demand for the shirts.
On what concepts are based the determination of the demand curve?
Explanation / Answer
MUs/MUj=Ps/Pj=40/25=8/5. so new optimum choice=5
Marginal utility of shirt/marginal utility of jean=price of shirt/price of jean. demand for shirt at equilibrium level is that bundle which satifies the above condition. demand curve derivation is based on utility maximisation subject to budget constraint.
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