Pete enjoys rock concerts and the opera. The table shows themarginal utility he

Question

Pete enjoys rock concerts and the opera. The table shows themarginal utility he gets from each activity. Number per month
Marginal utility from rock concerts
Marginal utility from operas
1
120
200
2
100
160
3
80
120
4
60
80
5
40
40
6
20
0

Pete has $200 a month to spend on concerts. The priceof a rock concert ticket is $20, and the price of an opera ticketis $40. How many rock concerts and how many operas does Peteattend?
Number per month
Marginal utility from rock concerts
Marginal utility from operas
1
120
200
2
100
160
3
80
120
4
60
80
5
40
40
6
20
0

Explanation / Answer

A lot of the logic of economics starts by considering anextreme and asking what people want to do at that extreme, and thenchanging their behavior a little at a time until they no longerwant to do something different. The point where you don'twant to do something different (given what everyone else is doing)is equilibrium. .
Suppose Pete started out buying all opera tickets. Themarginal utility of the 5th opera ticket is 40 utils. Does helike this decision? Not so much. If he gave up oneopera ticket, he could free up enough money to buy TWO rock concerttickets, with combined utility of 220.  So he loses 40utils but gains 220 utils. Good deal! . Suppose he gives up another opera ticket, costing him 80 utilsbut freeing up another $40 for another two rock tickets. Those tickets are worth 80+60=140 utils to him. Gooddeal! . If he gave up yet another opera ticket, he wouldsurrender 120 utils to gain rock tickets 5 and 6, worth only 60utils total. NOT A GOOD DEAL! . ASIDE: The goods here are "lumpy;" you have to buyindividual tickets. If you could buy fractions of goods, therule would be that you can always benefit from giving up a littleof one good for a little more of another UNTIL either     a) you're buying only one type of goodOR     b) the ratio MUx/Px = MUy/Py holds (theratio of the marginal utilities to the prices are equal; withmultiple goods, this has to hold across all products that areconsumed).      

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