Question
Q1.Suppose that you have to choose between Trekking and Camping and you are trying to determine how to spend your time and money on two
Q1.Suppose that you have to choose between Trekking and Camping and you are trying to determine how to spend your time and money on two activities which both cost $6 per hour. The marginal utility of the activities are shown in table below.
TREKKING | CAMPING | |||||
No. of Hours | Marginal Utility | Total Utility | Marginal Utility per Dollar Spent | Marginal Utility | Total Utility | Marginal Utility per Dollar Spent |
1 | 90 | 95 | ||||
2 | 85 | 85 | ||||
3 | 70 | 70 | ||||
4 | 65 | 60 | ||||
5 | 60 | 45 | ||||
6 | 45 | 20 | ||||
7 | 35 | 15 | ||||
8 | 10 | 5 |
a) Complete the columns for total utilities in the above table.
b) Assume that you have a budget of $42. To maximize your total utility, how would you allocate your budget between the two activities?What is the resulting total utility?
Trekking: $ and hours
Camping: $ and hours
Total utility: utils
c) Suppose that your utility from the two activities remains unchanged the next day, when you again arrive with $42 in your pocket. Unfortunately, you discover that the hourly charge for Camping has increased to $12. Complete the marginal utility per dollar columns in the table above.Round your answers to 2 decimal places.
d) How will you now allocate your expenditures to maximize your total utility, assuming that partial hours cannot be purchased? What is the resulting total utility?
Trekking: $ and hours
Camping: $ and hours
Total utility: utils
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