Problem Set 2 - Rohit Banerjee 73-100 Section I Problem Set...

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Rohit Banerjee 73-100 Section I Problem Set 2 1a. The marginal utility gained by Roger by consuming another cheeseburger or another beer is the same for the two items because he gets the same amount of satisfaction independent of whether the item is a cheeseburger or a beer. b. The marginal utility that Roger gets from cheeseburgers and beer is the same but the price for each of the two is different meaning that the utility per dollar that Roger receives for each good is different. Because the price of beer is $2 and the price of a cheeseburger is $1, Roger gets double the utility per dollar from a cheeseburger than he does from the beer. c. If Roger gets the same marginal utility from the last cheeseburger he eats as he gets from the last beer he consumed as well as any other cheeseburger he consumed then he is maximizing his marginal utility. However, because the prices of the two goods he purchases are different, his utility per dollar is not the same. Therefore, if his income is equally allocated between these two items, he is not maximizing his utility. In order to maximize his utility, he would need to buy twice as many cheeseburgers as beer therefore equalizing/maximizing his utility. 2a. In order to maximize his average course grade, he needs to stay within 6 hours of study while having the highest average grade. It seems that economics is his most difficult subject so he should give the most time studying to that subject. On the other hand, statistics is his strongest subject so he can focus on that the least. Therefore, if we try the combination of 1 hour of statistics, 2 hours of mathematics and 3 hours of economics, the total average grade comes out to be 75.667. Moving in any direction for any subject leads to a greater loss in points than any increase in points. It turns out that the previously mentioned combination is the best strategy for the student. b. For statistics, he gains another 10 points by increasing his study time to 1 hour. For mathematics, he
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This note was uploaded on 07/14/2008 for the course ECON 73100 taught by Professor Klepper during the Fall '07 term at Carnegie Mellon.

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Problem Set 2 - Rohit Banerjee 73-100 Section I Problem Set...

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