Izaak likes to eat pizza and to fish. The more fishing he does the happier he is
ID: 1190651 • Letter: I
Question
Izaak likes to eat pizza and to fish. The more fishing he does the happier he is, up to 8 hours a day. If he fishes longer than 8 hours he gets a sore back and is less happy than if he hadn’t fished at all. For y less than or equal to 8, his utility function is U(x, y) = x + 3y, where x is money spent on pizza and y is hours per day spent fishing. His income is $40 a day and he has no expenses other than pizza. The Bureau of Fisheries has just decided to allow people without fishing licenses to fish only 3 hours a day. But if you buy a fishing license, you can fish as many hours as you wish. How much is Izaak willing pay for a license?
Explanation / Answer
x <=40
y<=8
MRS = 1/3
This means that for 1 hour of fishing he is willing to give away $3 of the amount he spents on pizza.
He would be willing to give 5*3 = $15 for another 5 hours of fishing.
This would keep his utility same as he would have with 3 hours of fishing
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