Question

Calvin loves to go on Ski trips. Going on a Ski trip costs Calvin a total of $42 per trip. Calvin also loves to go to Bluegrass concerts. Going to a concert costs Calvin a total of $20 per concert. Calvin must allocate his monthly entertainment budget carefully, and has evaluated how much satisfaction, measured in utils, he obtains from each Ski trip and each Bluegrass concert visit. Calvin's total utility from each activity is independent of the amount of the other activity he engages in. Calvin has an entertainment budget of $186. Visit Number Total Utils (Ski) 62 2.52 106 200 284 156 Total Utils Marginal Utils Marginal Utils Marginal Marginal Utils/$ (Bluegrass) (Ski) (Bluegrass) Utils/$ (Ski), 106 2.24 2.5 196 228 254 1.67 1.3 276 1.57 296 94 84 76 2 360 1.81 1.6 430 496 560 66 1.1 1.52 Suppose that the price of a Bluegrass concert increases to $26 from $20. The income budget remains at $186. Visits past 7 will not give any extra utility. a) Compute Calvin's original equilibrium (before the price change). Original number of Ski trips = Original number of Bluegrass concerts = 0

Answer 1

a ) Ans:

Original number of Ski trips = 3  

Original number of Bluegrass concerts = 3

Explanation:

Utility maximizing condition ;

MU_S / P_S = MU_B / P_B and the entire budget or money income should be spend.

Y = ( Price of Ski trips * Quantity of Ski trips ) + ( Price of Bluegrass concerts * Quantity of Bluegrass )

$186 = ( $42 * 3 ) + ( $20 * 3 )

$186 = $126 + $60

$186 = $186