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Unformatted text preview: $80 with the membership. Therefore, her budget line with the membership will pass through the bundle. c. (3) Determine whether Margie will buy the membership or not. Explain your answer. (Add indifference curves on the diagram from part “a” if needed.) Her MRS (or MV) at the bundle (10B, 40AOG) equals MC=PB/PAOG=$5/$1=5 (AOG). With the new price PB=$4, MV=5>MC=4. It means the initial bundle is not an optimum for her anymore. She can be better by buying more books and less all other goods. d. (2) If Margie decides to buy the membership, what will be her MRS (i.e. marginal value of a book) at her NEW optimal bundle? With the new price PB=$4, at the new bundle B, MRS (or MV)=MC=4 40 10 90 90/5=18 90 ‐ 10= 80 80/4=20 AOG Book Old I.C. New I.C....
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- Spring '12