Author Question: Tris is shopping for pants and belts. He has a budget of 100. The price of a pair of pants is 20 and ... (Read 124 times)

nelaaney · **on:** Jun 29, 2018

Tris is shopping for pants and belts. He has a budget of 100. The price of a pair of pants is 20 and the price of a belt is 5. His marginal utility schedules are above. What combination of pants and belts does Tris buy? Explain your answer.

What will be an ideal response?

Question 2

In the long-run equilibrium for a perfectly competitive market

A) the firms' economic profits are zero.
B) there is no incentive for entry or exit.
C) average total costs of production are minimized.
D) All of the above are correct.

jliusyl · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Tris buys 4 pairs of pants and 4 belts because this is the combination that allocates (spends) all of his budget and has the marginal utility per dollar from a pair of pants equal to the marginal utility per dollar from a belt. For the first requirement, that Tris allocate his entire budget, the combination of 4 pants and 4 belts spends (4 pairs of pants) (20 per pair of pants) = 80 on pants and (4 belts) (5 per belt) = 20 on belts, for a total spent of 100. For the second requirement, the equality of the marginal utilities per dollar, the marginal utility per dollar from a pair of pants is (100 units) (20 ) = 5 units per dollar and the marginal utility per dollar from a belt is (25 units) (5 ) = 5 units per dollar.

Answer to Question 2

D