Final Exam Review
Additional Problem #4
:
Utility Analysis
1.
Max enjoys windsurfing (W) and snorkeling.
He obtains the following total utility from
each of these sports:
Half-hours
(per month)
TU
W
MU
TU
S
MU
S
1
60
20
2
110
38
3
150
53
4
180
64
5
200
70
6
206
75
7
211
79
8
215
82
9
218
84
(a)
Calculate Max’s marginal utility from windsurfing and from snorkeling.
(You may add
this information to the above table with columns for the MU for windsurfing and the MU
for snorkeling.
(b)
If Max has $35 to spend, and equipment for windsurfing rents for $10 per half-hour,
while snorkeling equipment rents for $5 per half-hour, how long will Max choose to
windsurf?
Snorkeling?
Why?
(c)
What is Max’s budget constraint?
Explain verbally and write the equation for his budget
constraint below.
(d)
Now, suppose Max’s sister gives him $20 to send on his leisure pursuits, so he now has
$55 to spend.
How long will Max windsurf?
Snorkeling?
(e)
If Max has $55 to spend and the rent on windsurfing equipment is cut to $5 per half-hour,
how will Max now spend his time windsurfing?
Snorkeling?

This
** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up*