PS 2 Solutions

PS 2 Solutions - Economics 1 Sections 114-118 Problem Set 2...

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Economics 1 Sections 114-118 Problem Set 2 Instructor: Professor Gunter TA: Christopher Zwicker You are taking your girlfriend/boyfriend to the carnival and you have a tight budget of $24 to spend on two diversions, RIDES (R) and JUNK FOOD (JF). Each RIDE costs $3.20 and each piece of JUNK FOOD costs $3.20. Assume that: a.)1 RIDE = 1 ride for both you and your buddy b.)1 JUNK FOOD = enough food for both you and your buddy The utility breakdown for each number of rides and each piece of junk food is as follows: # of Rides Total Utility (rides) Marginal Utility (last ride) # of JFs Total Utility (JF) Marginal Utility (last JF) 0 0 - 0 0 - 1 10 10 1 8 8 2 19 9 2 12 4 3 27 8 3 14 2 4 31 4 4 13 -1 5 33 2 5 7 -6 6 34 1 6 -8 -15 7 33 -1 7 -58 -50 8 31 -2 8 -158 -100 1.) Find the Marginal Utility per dollar spent (MU/$) of both RIDES and JUNK FOOD. MU / $ = MU / Price ($)
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NUMBER MU/$ of Rides MU/$ of Junk Food 0 - - 1 10/3.2 = 3.125 8/3.2 =2.5 2 9/3.2 = 2.8125 4/3.2 = 1.25 3 8 2.5 2 0.625 4 4 1.25 Not Consumed
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PS 2 Solutions - Economics 1 Sections 114-118 Problem Set 2...

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