Question
Jill, a very careful maximizer of utility, enjoys the activities of ice skating and going to...
Jill, a very careful maximizer of utility, enjoys the activities of ice skating and going to the movies each month. Assume that the price of ice skating is $10 per ticket, the price of a movie ticket is $15 each, Jill's marginal utility of going ice skating next is 30, and her marginal utility of going to the next movie is 30.(1) Given Jill has the ability to participate in either of these activities, which activity should Jill choose to do next?(2) Fully explain why this is the activity she should choose.
Answers
Preferences are perfect Substitutes
Let i : ice skating
m : movies
U(i,m) = 30i + 30m
Pi = 10, Pm = 15
As perfect Substitute Preferences, so only corner solution exist,
Thus, as MRS = MUi/MUm = 1
As MRS > Pi/Pm = 10/15
MUi/Pi > MUm/Pm
Only i is Consumed,
so, choose ice skating next activity
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