Marginal utility

Books or Movies

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.

Total Utility Quantity Marginal Utility Marginal Utility Per $
50 1    
80 2    
100 3    
110 4    
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:

  1. How many books and movies would maximize your level of satisfaction given the budget of $60.00?
  2. Are the charts above consistent with the Law of Diminishing Marginal Utility? Why or Why not?
  3. What is the consumer surplus of purchasing three books?
  4. 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?
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