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Author Question: The table above shows Danielle's utility from ice cream and romance novels. a) What is Danielle's ... (Read 237 times)

jazziefee

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on: Jun 29, 2018
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.


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djofnc

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Reply #1 on: Jun 29, 2018
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

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Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review

olderstudent

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Reply 3 on: Yesterday
Excellent

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