Marginal Utility and Budget Constraints

Feb 3rd, 2012
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Alabama State University
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The laws of diminishing marginal utility are obeyed in the table and graph illustrations, as more units of one item are purchased the level of satisfaction derived from the procurement of that commodity decreases. As more books are procured the level of satisfaction decreases from 6.25 to a lesser value, and as more movies are procured the level of satisfaction derived decreases from 1.1 to a less value

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Marginal Utility and Budget Constraints PaperStudent's NameProfessor's NameAffiliationDateMarginal Utility and Budget ConstraintsBooksTotal UtilityQuantityMarginal UtilityMarginal Utility per $50150 6.25802303.751003202.51104101.25MovieTotal UtilityQuantityMarginal UtilityMarginal Utility per $221221.1422201523100.557450.25The Formula for the relationship between books and movies can be expressed as a linear function with independent variable X and dependent variable YLet;X= the quantity of books Y=the quantity of moviesM=consumer's IncomePX=the price of booksPY=the price of moviesHence: M=$60PX=$8PY=$20The linear equation is given by:M=PX*X+PY*Y$60=$8X+$20YThus;Y=-0.4X+3Plotting this on a graph we need four pointsAssume the following values for X and YX0135Y32.61.80 The graph can be drawn as follows:The above graph represents the total consumption of the $60 income on books and movies depending on the consumer's levels of utility.1. The maximization of consumer satisfaction will be realized if 3 movies are purchases and no books are procures, or the consumer can purchase 5 b

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