John's Income = $60 CD Price = $10 Games price = $5 Budget line Schedule Nos of Nos

Economics Nov 11, 2020

John's Income = $60 CD Price = $10 Games price = $5 Budget line Schedule Nos of Nos. of CD Games 0 12 1 10 2 8 3 4 4 5 6 John's Budget line Nee Answer 2 (e) John will choose, one after another, that good (between CD and game) which give him more utility than next best option. He will purchase five CDs first, and then two games. John will purchase 5 CDs + 2 Games, as shown by following diagram John's Equilibrium Point Unfo John's equilibrium point = 5 CDs and 2 games

Expert Solution

Equilibrium is attained where;

Marginal utility of CDs / price of CDs = Marginal utility of games / price of games

MU of CDs / MU of games = P of games / P of CDs

MU of CDs / MU of games = 5 / 10

MU of CDs / MU of games = 1/2

2 MU of CDs = MU of games

Utility table is missing as previous information of question is not there.

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