Assume that John has RO 21 to spend on Energy drink and Protein bars each month and that both goods must be purchased whole (no fractional units). Energy drink (X) cost RO 3 and Protein bars (Y) cost RO 2 each. John’s preferences for movies and books are summarized by the following information: No. per Month Energy drinkNo. per Month Protein barsTUMUMU/PxTUMUMU/Py184 136 2156 266 3216 390 4264 4108 5300 5120 6324 6126 7336 7126 Fill in the figures for marginal utility of X and marginal utility of Y per dollar for both movies and books.Are these preferences consistent with the law of diminishing marginal utility? Explain briefly.Given the budget of RO 21, what quantity of Energy drink (X) and what quantity of Protein bars (Y) will maximize John’s level of satisfaction? Explain briefly.

Answered: Assume that John has RO 21 to spend on…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that John has RO 21 to spend on Energy drink and Protein bars each month and that both goods must be purchased whole (no fractional units). Energy drink (X) cost RO 3 and Protein bars (Y) cost RO 2 each. John’s preferences for movies and books are summarized by the following information:

No. per Month	Energy drink	No. per Month	Protein bars
TU	MU	MU/P_x	TU	MU	MU/P_y
1	84			1	36
2	156			2	66
3	216			3	90
4	264			4	108
5	300			5	120
6	324			6	126
7	336			7	126

Fill in the figures for marginal utility of X and marginal utility of Y per dollar for both movies and books.
Are these preferences consistent with the law of diminishing marginal utility? Explain briefly.
Given the budget of RO 21, what quantity of Energy drink (X) and what quantity of Protein bars (Y) will maximize John’s level of satisfaction? Explain briefly.

Expert Solution

Step 1

Given Data:

John has RO to spend on energy drink and protein bars = 21

Energy Drink (x) Cost RO =3 each

Protein Bars (y) Cost RO = 2 each

Given is the table that summarizes following information:

Answer- 1

Step 2

Answer- 2.

The Law of Diminishing Marginal Utility: This law explains that as the person/individual consumes an item or a product, the satisfaction or utility that they derived from that product declines as they consumes more and more of that product.

Therefore above preference matches with the law of diminishing marginal utility because john’s utility of satisfaction decreases at each level as he consumes more and more quantity of energy drinks and protein bars.

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