Illustrate the new budget constraint

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Reference no: EM137624

Q. a. Fill in the figures for marginal utility and marginal utility per dollar for both movies and books.

b. Are these preferences consistent with the law of diminishing marginal utility? Explain in brief.

c. Given the budget of $80, what quantity of books and what quantity of movies will maximize Joe's level of satisfaction? Explain briefly.

d. Draw the budget constraint (with books on the horizontal axis) and identify the optimal combination of books and movies as point A.

e. Now assume the price of books falls to $ 10. Which of the columns in the table must be recalculated? Do the required recalculations.

f. After the price change, how several movies and how many books will Alexandr purchase?

g. illustrate the new budget constraint and identify the new optimal combination of books and movies as point B.

h. If you calculated correctly, you found that a decrease in the price of books caused Alexandr to purchase more movies as well as more books. How can this be?

Reference no: EM137624

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