QUESTION 1

For this problem, assume that Joe has RM120 to spend on movies and books each month. Movies cost RM10 each, and books cost RM20 each. Joe's preferences for movies and books are summarized by the following information:

Movies (RM10)	Books (RM20)
No. Per Month	Total Utility (TU)	No. Per Month	Total Utility (TU)
1	50	1	22
2	80	2	42
3	100	3	52
4	110	4	57
5	116	5	60
6	121	6	62
7	123	7	63

1. Calculate the Marginal Utility (MU) and Marginal Utility Per Price (MU/P) for each good.
2. Are these preferences consistent with the law of diminishing marginal utility? Explain briefly.
3. Given the budget of RM120, what quantity of books and what quantity of movies will maximize Joe's level of satisfaction? Explain briefly.
4. What is Joe Total Utility (TU) at equilibrium?
5. Draw the budget constraint (with books on the horizontal axis) and identify the optimal combinations of books and movies.
6. Mooville is a small town in Texas. Assume that beef is a normal good. What happens to the amount of beef demanded or supplied in each of the following cases? Illustrate a demand and supply curve for each part of this question and show how the change will shift the demand and/or supply curve.

1. A subsidy that reduces production costs for beef producers
2. A reduced supply of fish
3. A rise in the wage rate in the beef industry
4. A rise in income
5. A bad tomato crop

QUESTION 3 (20 MARKS)

1. Complete the table below:

OUTPUT	TFC	TVC	TC	MC	AFC	AVC	ATC
0			60	-	-	-	-
1				100			160
2		180					120
3						80
4			400
5		600

1. Is the firm operating in the short run or long run? Why?

(c) Label the following parts on the Law of Diminishing Marginal Returns graph: