Question

Utility Max.docx Page 3 of 3 Yaomin is an aficionado of the true baseball experience. Every week during 2. baseball season, he budgets $128 for the game and hot dogs. Assume the price of a hot dog is $2.00 and the price of a baseball game is $60.00. Given the information below about Yaomin's preferences for hot dogs and baseball games, determine his optimal choice of games and hot dogs for each week of the baseball season. Show your work. Marginal Marginal Baseball Utility Utility Per Marginal Utility of Baseball Hot Total MU/S Spent on Baseball Total Games Utility of Dogs Utility of Hot of Hot Dollar Games per Week per Week Dogs Dogs Spent on Hot Dogs Games Games 0 0 40 400 2 60 2 700 3 76 3 850 4 86 4 950 91 5 1,000 6 93 6 1,025 PrtScn Home FB End F6 & 5 6 7 8 Jerome has budgeted $10,000 this year for groceries and entertainment 1. (nights out on a date.) After some consideration, Jerome provided the following information about various combinations of groceries (measured in bags) and entertainment (measured in nights out) per year to which he is indifferent: INDIFFERENCE CURVE # 1 : Total Utility 300 Utils Entertainment Bundle Groceries 90 A 15 70 B B 30 55 C 55 50 D 65 47 E 80 INDIFFERENCE CURVE # 2 : Total Utility 200 Utils Bundle Entertainment Groceries 92 10 75 G 20 60 35 53 I 48 45 J 65 INDIFFERENCE CURVE #3: Total Utility = 100 Utils Entertainment Bundle Groceries 75 K 55 L 15 40 30 25 60 21 80 PrtScn ET Home End $ & % A 5 6 7 On graph paper, draw all three indifference curves in the same with Entertainment measured on the vertical axis and Groceries measured on the horizontal axis. (Each block should measure 5 units.) Assume that to start, the price of a night of groceries is $100. Insert the starting budget constraint in your graph and determine Jerome's optimal bundle of groceries and entertainment. Mark this bundle clearly a. graph, b, out is $100 and the price of a bag Utility Max.docx Page 2 of 3 At the optimal bundle selected in part b., what is the opportunity bag of groceries in terms of nights out as determined in the market place (that is, using relative price)? cost of a d. At the optimal bundle selected in part b., what is Jerome's Marginal Rate of Substitution of bags of groceries for nights out? Suppose that the price of a bag of groceries rises to $125 per bag. Insert the new budget constraint into your graph (the same graph) and determine Jerome's new optimal bundle of groceries and entertainment. Mark this new bundle clearly. At the NEW optimal bundle found in part e., what is the opportunity cost of a bag of groceries in terms of nights out as determined using relative f. PrtScn Home End PgUp F3 F6 F7 FB F10 % & A ) 6 7 0 2/Me/content/760555/viewContent/10733590/View th +2 BP On graph paper, draw all three indifference curves in the same with Entertainment measured on the vertical axis and Groceries measured on the horizontal axis. (Each block should measure 5 units.) Assume that to start, the price of a night out is $100 and the price of a bag of groceries is $100. Insert the starting budget constraint in your graph and determine Jerome's optimal bundle of groceries and entertainment Mark this bundle clearly a. graph. b. Utility Max.docx Page 2 of 3 At the optimal bundle selected in part b., what is the opportunity cost of a bag of groceries in terms of nights out as determined in the market place (that is, using relative price)? At the optimal bundle selected in part b., what is Jerome's Marginal Rate of Substitution of bags of groceries for nights out? d. Suppose that the price of a bag of groceries rises to $125 per bag. Insert the new budget constraint into your graph (the same graph) and determine Jerome's new optimal bundle of groceries and entertainment. Mark this new bundle clearly At the NEW optimal bundle found in part e., what is the opportunity cost of a bag of groceries in terms of nights out as determined using relative

Answer 1

A-2) Bauchall 9ornes MU B9 TU hot NU. TU Dogs HD MU 400 40 L9.2 300 700 (0 3 6 950 4 16 a) 0-$3 20 P. 4 l900 25 6-42 1 93 2 FIRA 4noeme 9auen oftinial chaice MOID= tandung base ball at the fRa andlthus the urnti abaue he care mher e Lait Hot bogs be fames condum eA Mupa 2 as nits Ond