Managerial Economics I

Assignment #2

1. Max enjoys windsurfing and snorkeling. Max has $35 a day to spend, and he can spend as much time as he likes on his leisure pursuits. The price of renting equipment for windsurfing is $10 an hour and for snorkeling is $5 an hour. The table shows the total utility Max gets from each activity.

TotalTotal

Hoursutility fromutility from

per daywindsurfingsnorkeling

112040

222076

3300106

4360128

5396140

6412150

7422158

1. Calculate Max's marginal utility from windsurfing at each number of hours per day. Does Max's marginal utility from windsurfing obey the principle of diminishing marginal utility?
2. How many hours does Max windsurf and how many hours does he snorkel to maximize his utility?
3. If Max spent a dollar more on windsurfing and a dollar less on snorkeling than in part (b), by how much would his total utility change?