2 Lab 6 (Question 4 - yrys Leaning Inc-Google Chrome Secure https/laecon1 Jyryx.

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2 Lab 6 (Question 4 - yrys Leaning Inc-Google Chrome Secure https/laecon1 Jyryx.com/student-servlets/LabSe b) Assume David spends $120 per month on these two activities, consuming them in full hours only How many hours/month will he ride his motorcycle and how many hoursimonth will he grow orchids? Hours Biking: 6 Hours Growing Orchids: 3 c) Suppose now that the price of motorcycle riding goes up to $30 per hour Fill in the table Hours/Month MU Biking Biing Per $ MU Orchids Orchid 4,200 3,900 3,600 2,700 2,55085 2.400 2.250 1,500 Per $ 180 170 160 150 140 140 130 120 90 1,800 1,700 1,600 1,500 1,400 1,300 1.200120 1100110 50 d) Using the new price of biking. how many hours/month will he ride his motorcycle and how many hoursmonth will he grow archids? Hours Growing Orchids: 6 e) Sketch a demand curve showing David's demand for riing his motorcycle based on your answers for questions b) and d " Biking Demand Curve Hours Biking: 2 90

Explanation / Answer

(Part d) Revised budget line: 120 = 30B + 10C, or 12 = 3B + C where B & C: Hours of Biking & Orchid

Utility will be maximized when (MU Biking per $) = (MU Orchid per $)

From the filled-in table, this condition is satisfied when

(1) B = 1, C = 5 (MU per $ = 140) with Total cost ($) = 1 x 30 + 5 x 10 = 30 + 50 = 80 (Underutilized budget)

(2) B = 2, C = 6 (MU per $ = 130) with Total cost ($) = 2 x 30 + 6 x 10 = 60 + 60 = 120 (Exhausted budget)

(3) B = 3, C = 7 (MU per $ = 120) with Total cost ($) = 3 x 30 + 7 x 10 = 90 + 70 = 160 (Overutilized budget)

Since bundle (2) exhausts the budget, this is the optimal bundle (2 hours of Biking and 6 hours for Orchid).

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