Marginal utility for each pony and each stick of dynamite

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Reference no: EM131160413

Suppose Jacqueline likes to do two things with her disposable income: ride ponies and blow things up. The price of each pony is $200 and the price of each stick of dynamite is $100. The table below shows Jacqueline’s preferences for these goods.

a. Fill in the table with the marginal utility for each pony and each stick of dynamite. What principle do the patterns in marginal utility demonstrate? Briefly explain this principle as if explaining to a small child.

b. According to the table and the theory of consumer choice we discussed in class, what should be the first two purchases (in order) made by Jacqueline? Briefly explain the reason for your answer.

c. If she has $600 to spend, what bundle of goods will Jacqueline purchase in order to maximize utility? Sketch a diagram (with ponies on the y-axis) that illustrates Jacqueline’s choice of what to consume.

Reference no: EM131160413

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