The table above shows Danielle's utility from ice cream and ...

[jazziefee]

The table above shows Danielle's utility from ice cream and romance novels.
 
  a) What is Danielle's marginal utility from the 4th novel?
  b) The price of ice cream is 5 per gallon and a novel is 10. If Danielle's budget for these two goods is 50 and she buys 2 gallons of ice cream, how many novels can she buy? If she buys 6 gallons of ice cream, what is her marginal utility per dollar spent on novels?
  c) Which combination of the two goods is better: 4 gallons of ice cream and 3 novels or 6 gallons of ice cream and 2 novels?

Question 2

If the donut industry is perfectly competitive and is in long-run equilibrium, then the price of a donut
 
  A) is greater than marginal cost.
  B) is greater than short-run average cost.
  C) is greater than long-run average cost.
  D) equals long-run average cost.

[djofnc]

Answer to Question 1

a) Danielle's marginal utility from the 4th novel is 560 - 450 = 110.
b) When Danielle buys 2 gallons of ice cream, she spends 5  2 = 10 on ice cream. So Danielle spends the rest of her budget, which is 50 - 10 = 40, on novels. Because the price of a novel is 10, she buys 40  10 = 4 novels. When Danielle buys 6 gallons of ice cream, she spends 5  6 = 30 on ice cream. So Danielle spends the rest of her budget, which is 50 - 30 = 20, on novels. Because the price of a novel is 10, she buys 20  10 = 2 novels. So her marginal utility from the second novel is 320 - 170 = 150 and, since the price of a novel is 10, the marginal utility per dollar is 150  10 = 15.
c) 4 gallons of ice cream and 3 novels is better. In both cases Danielle spends all her budget. But if she buys 4 gallons of ice cream and 3 novels, her total utility is 320 + 450 = 770, while if she buys 6 gallons of ice cream and 2 novels, her total utility is 420 + 320 = 740.

Answer to Question 2

D

[jazziefee]

YES! Correct, THANKS for helping me on my review

[nanny]

Excellent