110_11s_SelectedQ_Ch08

# 110_11s_SelectedQ_Ch08 - Econ 110 Selected Questions From...

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1 Econ 110 Selected Questions From Chapter 8 - UTILITY AND DEMAND 1. Max enjoys windsurfing and snorkeling. The table shows the total utility he gets from each activity. a. Find Max’s marginal utility from windsurfing at each number of hours per day. Max’s marginal utility from windsurfing 1 hour per day is 120; from windsurfing 2 hours per day is 100; from windsurfing 3 hours per day is 80; from windsurfing 4 hours per day is 60; from windsurfing 5 hours per day is 36; from windsurfing 6 hours per day is 16; and, from windsurfing 7 hours per day is 10. b. Find Max’s marginal utility from snorkeling at each number of hours per day. Max’s marginal utility from snorkeling 1 hour per day is 40; from 2 hours per day is 36; from snorkeling 3 hours per day is 30; from snorkeling 4 hours per day is 22; from snorkeling 5 hours per day is 12; from snorkeling 6 hours per day is 10; and, from snorkeling 7 hours per day is 8. c. Do Max’s marginal utility from windsurfing and from snorkeling obey the principle of diminishing marginal utility? Max’s marginal utility from windsurfing and from snorkeling both obey the principle of diminishing marginal utility because both decrease as the consumption increases. d. Which does Max enjoy more: his 6th hour of windsurfing or his 6th hour of snorkeling? Max’s marginal utility from his 6th hour of windsurfing is 16 and his marginal utility from his 6th hour of snorkeling is 10. Max enjoys his 6th hour of windsurfing more than his 6th hour of snorkeling. 2. Max in problem 1 has \$35 a day to spend, and he can spend as much time as he likes on his leisure pursuits. Windsurfing equipment rents for \$10 an hour, and snorkeling equipment rents for \$5 an hour. a. Make a table that shows the various combinations of hours spent windsurfing and snorkeling that Max can afford. The table is to the right. b. In your table, add two columns and list Max’s marginal utility per dollar from windsurfing and from Hours per day Total utility from windsurfing Total utility from snorkeling 1 120 40 2 220 76 3 300 106 4 360 128 5 396 140 6 412 150 7 422 158 Hours windsurfing Marginal utility per dollar from windsurfing Hours snorkeling Marginal utility per dollar from snorkeling 3 8.0 1 8.0 2 10.0 3 6.0 1 12.0 5 2.4 0 7 1.6

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2 snorkeling. The columns are in the table. c. How long does Max spend windsurfing and how long does he spend snorkeling to maximize his total utility? To maximize his utility, Max windsurfs for 3 hours and snorkels for 1 hour. Max uses his \$35 so that all of the \$35 is spent and so that the marginal utility per dollar from each activity is the same. When Max windsurfs for 3 hours and snorkels for 1 hour, he spends \$30 renting the windsurfing equipment and \$5 renting the snorkeling equipment—a total of \$35. The marginal utility from the third hour of windsurfing is 80 and the rent of the windsurfing
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## This note was uploaded on 05/20/2011 for the course ECON 110 taught by Professor Po during the Spring '11 term at HKU.

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110_11s_SelectedQ_Ch08 - Econ 110 Selected Questions From...

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