
(a)
Complete the table.
(a)

Explanation of Solution
For calculating marginal utility from total utility, substitute the values in Equation (1) with the help of Table 1.
Thus, the marginal utility for the first additional unit of the first-run movie is 140. Likewise, each marginal utility can be calculated by substituting each value in Equation (1). It is shown in Table 1.
Table 1
First-Run Movies | Bottles of Wine | ||||
Quantity | Total Utility | Marginal Utility | Quantity | Total Utility | Marginal Utility |
0 | 0 | 0 | 0 | 0 | 0 |
1 | 140 | 140 | 1 | 180 | 180 |
2 | 260 | 120 | 2 | 340 | 160 |
3 | 360 | 100 | 3 | 460 | 120 |
4 | 440 | 80 | 4 | 510 | 50 |
5 | 500 | 60 | 5 | 540 | 30 |
Marginal utility: Marginal utility refers to the additional unit of satisfaction derived from the consumption of one more additional unit of goods and services.
(b)
Utility maximizing combination of the first-run movies and wine.
(b)

Explanation of Solution
The consumer spends $50 for entertainment and wine per month, where the
Table 2
First-Run Movies | Bottles of Wine | ||||
Quantity | Marginal Utility | Marginal Utility per Dollar (P=$10) | Quantity | Marginal Utility | Marginal Utility per Dollar (P=$10) |
0 | 0 | 0 | 0 | 0 | 0 |
1 | 140 | 14 | 1 | 180 | 18 |
2 | 120 | 12 | 2 | 160 | 16 |
3 | 100 | 10 | 3 | 120 | 12 |
4 | 80 | 8 | 4 | 50 | 5 |
5 | 60 | 6 | 5 | 30 | 3 |
Thus, the utility maximizing combination of the consumer is 2 movies and 3 bottles of wine, where he gets the same level of marginal utility per dollar.
Utility maximization: The utility is maximized at the point where the last dollar spent on both the commodities provides the same level of marginal utility of the dollar.
Marginal utility: Marginal utility refers to the additional unit of satisfaction derived from the consumption of one more additional unit of goods and services.
(c)
Equilibrium allocation between movie and wine when the price of wine decreases.
(c)

Explanation of Solution
When the price of wine decreases to $5 per bottle, the consumer will watch 3 movies and consume 4 bottles of wine at $50. This is because the consumer will not purchase goods when marginal utility per dollar is lower than its price.
Thus, consumer’s equilibrium allocation between movie and wine is 3 and 4, respectively.
Marginal utility: Marginal utility refers to the additional unit of satisfaction derived from the consumption of one more additional unit of goods and services.
(d)
Calculate the
(d)

Explanation of Solution
When the price of wine decreases as $5, the consumer will buy 4 bottles of wine instead of 3. The elasticity of
For calculating the elasticity of demand for wine, substitute the respective values in Equation (1).
Thus, the elasticity of demand for wine is 0.427.
Elasticity of demand: Elasticity of demand refers to the responsiveness or the change in quantity demanded due to the change in price.
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Chapter 6 Solutions
Economics Principles For A Changing World
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