1. Suppose Jacqueline likes to do two things with her disposable income: ride po
ID: 1208557 • Letter: 1
Question
1. Suppose Jacqueline likes to do two things with her disposable income: ride ponies and blow things up. The price of each pony is $200 and the price of each stick of dynamite is $100. The table below shows Jacqueline's preferences for these goods. Total of Ponies Utility of Ponies Quantity of Quantity Total Utility of namite namite 0 1000 1800 2000 1900 0 750 1050 1250 1350 4 (3 points) Fill in the table with the marginal utility for each pony and each stick of dynamite What principle do the patterns in marginal utility demonstrate? Briefly explain this principle as if explaining to a small child. a. b. 2 points) According to the table and the theory of consumer choice we discussed in class, what should be the first two purchases (in order) made by Jacqueline? Briefly explain the reason for your answerExplanation / Answer
Marginal utility is the increase in satisfaction attained due to increase in dynamite or pony. Increae in pony or increase in dyamite will increase the satisfaction because it is something she enjoys.
b. First two purchase should be 2 ponies because the total utility achieved by buying 2 ponies is 1800 and buying 1 pony and 1 dynamite is 1000 + 750 - 1750 and buying 2 dynamites is 1050. Therefore, her satisfaction is maximised when she buys 2 ponies.
c. If she has 600$ to spend she will buy 2 ponies and 2 dynamites so that her total utility will be maximised.
Quantity of ponies Total utility of ponies Marginal utility Quantity of dynamite Total utility of dynamite Marginal utility 0 0 0 0 0 1 1000 1000 1 750 750 2 1800 800 2 1050 300 3 2000 200 3 1250 200 4 1900 -100 4 1350 100Related Questions
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