Answer to Question #131611 in Microeconomics for chris

Question

Anna consumes two goods: cricket games and fries. Her income is $60, the price of cricket games is
$20, and the price of a serving of fries is $10. Consider this table of marginal utilities:
Quantity MU from cricket
games

MU from fries

1 200 100
2 150 75
3 100 50
4 50 20
5 25 10
6 20 5

a) Complete the table above. [2 marks]

b) What is the Anna’s opportunity cost of going to a cricket game? [2 marks]

c) Suppose that you consumed 1 football game and 4 servings of fries. Why is this not the
equilibrium? [3 marks]

d) What is the equilibrium?

Answer 1

a)    Let cricket games be C and Fries be F

20C + 10F = 60

C = 3 – 0.5F

C = 3 (Horizontal Axis)

To get the value of F, let C be 0

0 = 3 – 0.5F

3 = 0.5F

F = 6

To complete the table, we will add 3 for Cricket games and 6 for Fries.

Quantity MU from cricket games                                         MU from fries

1 200                                                                                                 100

2 150                                                                                                 75

3 100                                                                                                 50

4 50                                                                                                   20

5 25                                                                                                   10

6 20                                                                                                   5

7 3                                                                                                    6

b)    Ann’s opportunity cost of going to a cricket game

Opportunity cost = what you sacrifice/what you gain

20/10

Opportunity cost = $2

c)    Equilibrium is the price at which supply equals demand or where the hypothetical demand and supply curves intersect.

1C = 4F

20 = 40

Thus it is not equilibrium

d)    What is the equilibrium

The equilibrium is where the two meets in the horizontal and vertical axis

C = 3 and F = 6

3C = 6F

60 = 60

The equilibrium is 3 Cricket games and 6 Fries.