Question

1. Utility, Marginal Utility and Consumer Choice (23 points) a. Sam's preferences for minor league baseball games and local music concerts per month are summarized by the following information. Baseball games cost $20 each, and music concerts cost $30 each. Fill in the missing values for marginal utility and marginal utility per dollar for both baseball games and music concerts. (Enter your responses for MU as whole numbers and for MU/S rounded to two decimal places.) Minor League Baseball Games Number Total Marginal Marginal Utility Utility Utility per $ Month (MU) Spent Local Music Concerts NumberTotal Marginal Marginal per Utility Utility Utility pers Month (MU) Spent per 160 150 360 460 420 b. Does Sam have diminishing marginal utility in her enjoyment of the baseball games? Explain! c. Sam has $90 to spend each month on baseball games and music concerts. To maximize his satisfaction how many baseball games and music concerts should she attend? (Show your work!) d. Does Sam's choice that you found in part c. satisfy the criteria (an equation) we found for equilibrium in a consumer's choice between multiple goods in the context of a budget constraint? Explain.

Answer 1

A)

Qb	TU	MU	MU/20	Qm	TU	MU	MU/30
1	160	160	8	1	150	150	5
2	280	120	6	2	270	120	4
3	380	100	5	3	360	90	3
4	460	80	4	4	420	60	2

B) for baseball b,

As Qb rises, MU falls Continuously, thus case of Diminishing MU

C)at eqm, MU per dollar is Equalized across both b & m

& The total budget should be spended

.

So, MUb/20 = MUm/30

So, Qb = 3 & Qm = 1

Total Spending = 20*3 + 30*1

= 60+30

= 90

.

D) yes , it does satisfy all the criteria

Bcoz at eqm, MRS _b,m = Pb/Pm

MRS = MUb/MUm

100/150 = 2/3

Pb/Pm = 20/30 = 2/3

So two are equal