Example of equalancy the price ratio, Financial Accounting

Assignment Help:

Natasha's income is $300 per month. She spends all of it on tickets to concerts and films. A concert ticket costs $15 and a fi lm ticket costs $10. Her marginal rate of substitution for concerts with films, MRSCF , is F/C, where C stands for the number of concert tickets and F stands for the number of films.  Fractions are allowed-for example, if she buys half of a concert ticket, that means she goes to a concert every other month). How many film tickets will she purchase, and how many concert tickets?

The Solution Notice that MRSCF decreases as C rises and F falls. Therefore, each of Natasha's indifference curves has a declining MRS. To find a best choice, we look for a bundle on her budget line that satisfies the tangency condition.

At Natasha's best choice, her marginal rate of substitution between films and concerts equals the price ratio: MRSCF _ PC/PF . Substituting the information contained in the statement of the problem gives us the following: F/C _ 15/10 _ 1.5. In other words, Natasha purchases 1.5 times as many movie tickets as concert tickets.

The formula for Natasha's budget line is PCC _ PFF _ 300. Substituting the values of the prices into this formula, we have 15C _ 10F _ 300. Using the fact that F _ 1.5C gives us 15C _ 10(1.5C) _ 300, or 30C _ 300. So C _ 10, and F _ 15.

Natasha purchases 10 concert tickets and 15 movie tickets.

 


Related Discussions:- Example of equalancy the price ratio

What is the monthly rate - annual rate, Suppose that the annual rate of int...

Suppose that the annual rate of interest is 4%. (a) What is the monthly rate? (b) Consider a 3-year lease on a car that is worth $20,000 today. The first payment on the lease

Rental loss, Jane makes a living renting expensive state of the art surveil...

Jane makes a living renting expensive state of the art surveillance equipment to detectives and nervous spouses. Her average rental period is 27 days. The rental price includes all

Disclaimer-liquidation of companies, Disclaimer The liquidator may disc...

Disclaimer The liquidator may disclaim onerous property consisting of: 1.    Land burdened with onerous covenants; 2.    Stocks and shares; 3.    Unprofitable contracts, or 4.

The matching rule is applied ?, The matching rule is applied a. because it ...

The matching rule is applied a. because it is required by the Internal revenue Code b. by expensing certain items immediately and in their entirety c. to help make the bookkeeper's

Describe accounting concept of a business combination, Describe the account...

Describe the accounting concept of a business combination. Business Combination: According to International Financial Reporting Standard-3 Business Combinations "A busi

Compute the cost allocated to cost centers, 1.      Allocation of Indirec...

1.      Allocation of Indirect Cost Radiology Department in long Island Jewish Hospital incurred $1,267,000 of total indirect cost in five procedures (CC#557: Diagnostic Rad

Which investment is riskier, Stock A has an expected return of 9 percent, a...

Stock A has an expected return of 9 percent, a standard deviation of 20 percent, and a market beta of 0.5. Stock B has an expected rate of return of 10 percent, a standard deviatio

Determine the carrying amount, An item of plant was purchased for $100,000 ...

An item of plant was purchased for $100,000 on 1 January 2009. At that time its estimated residual value was $5,000. At 31 December 2009 prices, the residual value was estimated at

Compute the companys largest available depletion deduction, In May 2011, Yo...

In May 2011, Your Company purchased the rights to a natural resource for $4,125,000. The estimated recoverable units from the natural resource amount to 5,500,000 units. During the

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd