Refer to the following table for a different consumer, and assume that each year

ID: 1214962 • Letter: R

Question

Refer to the following table for a different consumer, and assume that each year this consumer buys only annual subscriptions to economics statistics apps and subscriptions to office productivity apps. The price of a subscription to each type of economics statistics app is $2 per year, and the price of a subscription to each office productivity app is $60 per year. If the consumer’s available income is $128 per year, what quantity of each item will the individual purchase each week at a consumer optimum? (See pages 461–462.)

Explanation / Answer

Marginal utility table is as below:

Quantity

TU of eco. Stat. apps

MU of eco. Stat. apps

TU of office productivity apps

MU of office productivity apps

400

60-40 = 20

700

700-400 = 300

76-60 = 16

850

850-700 = 150

86-76 = 10

950

950-850 = 100

91-86 = 5

1,000

1,000-950 = 50

93-91 = 2

1,025

1,025-1,000 = 25

(MU of eco. Stat. apps / Price) = (MU of office productivity apps / Price)

10 / $2 = 300 / $60

5 = 5

Answer: 4 quantities of eco stat and 2 quantities of office productivity should be subscribed.

Income = (4 × $2) + (2 × $60) = 8 + 120 = $128 (Proved)