You are reviewing your monthly budget and determine you have $60.00 to spend on either books or movies each month. (Remember you must have whole numbers, not fractions) The books cost $8.00 and the movies cost $20.00. Put this into equation form.
Complete the following Total Utilities table.
|
Books
|
|
|
Total Utility
|
Quantity
|
Marginal Utility
|
Marginal Utility Per $
|
|
50
|
1
|
|
|
|
80
|
2
|
|
|
|
100
|
3
|
|
|
|
110
|
4
|
|
|
|
Movies
|
|
|
Total Utility
|
Quantity
|
Marginal Utility
|
Marginal Utility Per $
|
|
22
|
1
|
|
|
|
42
|
2
|
|
|
|
52
|
3
|
|
|
|
57
|
4
|
|
|
Using the equation created above, solve to locate four points and plot them on a budget constraint line. Create the graph in Excel and paste onto your Word document answering the questions below.
Write a one page response answering the following questions about your graph and tables:
- How many books and movies would maximize your level of satisfaction given the budget of $60.00?
- Are the charts above consistent with the Law of Diminishing Marginal Utility? Why or Why not?
- What is the consumer surplus of purchasing three books?
- If you were able to go to the matinee for movies at a price of $10.00 instead, how would this change the amount of books and movies you could purchase?