pes16pset4sol - Principles of Economics W1105.002 Spring...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Principles of Economics W1105.002 Spring 2016 Prof. Musatti Problem Set 4: Solutions 1. For his birthday, Dave likes to receive videogames and sports tickets. Dave’s marginal utility from a videogame is equal to 50 utils regardless of the number of vidoegames he receives while his marginal utility from a sports ticket diminishes with the number of tickets (Q ST ) according to the function MU CT = 100/Q ST . Suppose the price of a videogame is $50 while the price of a sports ticket is $40. With a budget of $100, how many videogames and sport tickets should Dave’s friends buy for him? Would they spend their entire budget? Explain your reasoning. 1. Dave’s friends will buy two sports tickets and they will have $20 left unspent. Dave’s friends should spend money on each item so as to equalize the marginal utility per dollar. The marginal utility per dollar spent on videogames is 1 util per dollar regardless of the number of videogames. The marginal utility per dollar spent on sports tickets is 2.5/Q ST utils per dollar. The two marginal utilities per dollar are equal when Dave’s friends buy 2.5 sports tickets. However, sports tickets can be purchased only in whole amounts and they will buy 2 sports tickets. 2. The table shows a piano manufacturer’s total cost of producing pianos. a. What is the manufacturer’s fixed cost (FC)? b. For each level of output, calculate the variable cost (VC). For each level of output except zero, calculate the average total cost (ATC) the average variable cost (AVC) and the marginal cost (MC).
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern