fitness company offers online classes (x) for $10 per class. The typical customer has monthly utility from online fitness classes (x) and money spent on other things (m) U(x,m) = m + 40x^0.5 and a monthly budget of $200. a) Compute the expression of the Marginal Rate of Substitution of money for on-line classes. Does it depend on how much money the consumer spends on other things? Does the typical customer consider on-line classes an imperfect substitute to spending money on other things? b) Find the weekly optimal bundle of the typical customer. Keep in mind that the unit price of money spent on other things is $1. c) What is the typical customer’s level of utility at the optimal bundle?
A fitness company offers online classes (x) for $10 per class. The typical customer has monthly utility from online fitness classes
(x) and money spent on other things (m) U(x,m) = m + 40x^0.5 and a monthly budget of $200.
a) Compute the expression of the Marginal Rate of Substitution of money for on-line classes. Does it depend on how much money the consumer spends on other things? Does the typical customer consider on-line classes an imperfect substitute to spending money on other things?
b) Find the weekly optimal bundle of the typical customer. Keep in mind that the unit price of money spent on other
things is $1.
c) What is the typical customer’s level of utility at the optimal bundle?
a.
Marginal rate of substitution (MRS) for x to m can be calculated as follows.
Marginal rate of substitution (MRS) for m to x can be calculated as follows.
This indicates that the value of MRS is not influenced by the value of m. The online classes are not the substitution for money.
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