Question

Ons of approach rent the Furthermore, the Fire 7:4 rate indeference curve, budget line and relative determine the utility maximization th possible indifference curve rifle th mer preference panely to th e at contr a o m en het Total Utility Maximization - MOL the -MRS e specific Bobby he game below The above equation is the condition of Total tility M unitions the point of between indifference curve and the budget line as the best possible combination good consumption case. F ure 7. states this utility maximation process for ty consumer like Bobby Section 74 explains the change in tandeney point between the midget line and the nossible indifference curve when relative price changes. Changes in relative prices, assuming the increase in beer price per bottle, and its corresponding change in the quantity demanded for beer is illustrated in Floure 7.6 of panel (m) derived from punel (b) on the same Figure. This derived curve for beer consumption validates the consistency of law demand that if the price per unit of beer increases, the quantity of demand would decrease other factors remain the same at that moment. and the real door Application Activities: 1. Suppose your friend in the class has decided to purchasse a pair of shoes that cost $150 or dress shirt that costs $100. If she ends up purchasing the dress shirt, then it is possible to conclude that the marginal utility of dress shirt is higher than the marginal utility of the additional pair of shoes. Explain this conclusion under what conditions of utility maximization in two goods case of consumption. 2. Consider the diagram below for a demand curve kayaking for a particular day in summer or fall in the Charles River of Boston with hourly rate of rental for maximum of 8 hours a day.

Answer 1

1from the above eguateon Pr Total ltuty mauiusabon MU MUy १ne Auoes /SO lyPrice dress$10o SO MUx MUY Py MUx-2 MUy 2 hoes mirn utlty of drts