Question

Practice For this problem, assume that Mohammad has $144 to spend on Soccer Games and Fishing Trips each month and that both goods must be purchased whole (no fractional units). Attending a soccer game costs $6 each, and fishing costs $30 per trip. Mohammad's preferences for soccer and fishing are summarized by the following information: Soccer Games TU MU MU/S Fishing Trips TU MU MU/S 28 150 270 360 420 80 450 IIIIIII IIIIII 1111111 1111111 84 470 480 1- Fill in the figures for marginal utility and marginal utility per dollar for both soccer and fishing. 2- Are these preferences consistent with the law of diminishing marginal utility? Explain briefly. 3. Given the budget of $144, what quantity of soccer games and what quantity of fishing trips will maximize Mohammad's level of satisfaction? Explain briefly. 4- Now suppose the price of soccer game rises to $8. Which of the columns in the table must be recalculated? Do the required recalculations. 5- After the price change, how many soccer games and how many fishing trips will Mohammad purchase? 6- Draw the total utility for both soccer games and for the fishing trips.

Answer 1

Soccer	TU	MU	MU/P	Fishing	TU	MU	MU/P
1	28	28	4.67	1	150	150	5
2	46	18	3	2	270	120	4
3	62	16	2.67	3	360	90	3
4	74	12	2	4	420	60	2
5	80	6	1	5	450	30	1
6	84	4	0.67	6	470	20	0.67
7	86	2	0.33	7	480	10	0.33

2) As per the law of Diminishing marginal utility, the utility from additional units keeps decreasing so the preferences are consistent with the law.

3) The utility is maximized where MU/P for both goods are equal to one another

so, with the given budget, he will purchase 4 units of both goods

4) When the price of soccer games increases to 8, the MU/P for soccer needs to be recalculated

Soccer	TU	MU	MU/P
1	28	28	3.5
2	46	18	2.25
3	62	16	2
4	74	12	1.5
5	80	6	0.75
6	84	4	0.5
7	86	2	0.25

As per HOMEWORKLIB RULES, first four parts are answered