Bruno, the consumer in Problem 5, is best friends with Bernie, who shares his love for notebooks and Beyonc̩ CDs. The accompanying table shows Bernie۪s utilities from notebooks and Beyonc̩ CDs.

The price of a notebook is $5, the price of a CD is $10, and Bernie has $50 of income to spend.
a. Which consumption bundles of notebooks and CDs can Bernie consume if he spends all his income? Illustrate Bernie's budget line with a diagram, putting notebooks on the horizontal axis and CDs on the vertical axis.
b. Calculate the marginal utility of each notebook and the marginal utility of each CD. Then calculate the marginal utility per dollar spent on notebooks and the marginal utility per dollar spent on CDs.
c. Draw a diagram like Figure 10-4 in which both the marginal utility per dollar spent on notebooks and the marginal utility per dollar spent on CDs are illustrated.
Using this diagram and the utility-maximizing principle of marginal analysis, predict which bundle-from all the bundles on his budget line-Bernie will choose.

Transcribed Image Text:

Quantity of notebooks Utility fromm notebooks (utils) Quantity of CDs Utility fromm CDs (utils) 70 130 180 220 250 80 150 210 260 300 4 8 4 10