Taylor's marginal utility from watching movies and from eating out (in utils) is shown below. Taylor spends exactly $100 every month on these two forms of entertainment, and the price of each movie is $10 and the price of each dinner is $20. $$\begin{array} { | c | c | c | c | }
\hline \begin{array} { c }
\text { Movies } \
\text { Per Month }
\end{array} & \begin{array} { c }
\text { Marginal Utility } \
\text { Per Movie }
\end{array} & \begin{array} { c }
\text { Dinners Out } \
\text { Per Month }
\end{array} & \begin{array} { c }
\text { Marginal Utility } \
\text { Per Dinner }
\end{array} \
\hline 1 & 60 & 1 & 150 \
\hline 2 & 50 & 2 & 140 \
\hline 3 & 20 & 3 & 120 \
\hline 4 & 5 & 4 & 100 \
\hline
\end{array}$$ If Taylor eats out 3 times a month, Taylor will watch ______ movies, and have marginal utility per dollar of ______ from eating out and a marginal utility per dollar of ______ from going to the movies.

Question

Taylor's marginal utility from watching movies and from eating out (in utils) is shown below. Taylor spends exactly $100 every month on these two forms of entertainment, and the price of each movie is $10 and the price of each dinner is $20. $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Movies } \
\text { Per Month }
\end{array} & \begin{array} { c } 
\text { Marginal Utility } \
\text { Per Movie }
\end{array} & \begin{array} { c } 
\text { Dinners Out } \
\text { Per Month }
\end{array} & \begin{array} { c } 
\text { Marginal Utility } \
\text { Per Dinner }
\end{array} \
\hline 1 & 60 & 1 & 150 \
\hline 2 & 50 & 2 & 140 \
\hline 3 & 20 & 3 & 120 \
\hline 4 & 5 & 4 & 100 \
\hline
\end{array}$$ If Taylor eats out 3 times a month, Taylor will watch ______ movies, and have marginal utility per dollar of ______ from eating out and a marginal utility per dollar of ______ from going to the movies.

Quizplus · Accepted Answer

If Taylor eats out 3 times a month, that leaves $40 for movies. Since each movie costs $10, Taylor can watch 4 movies (4 x $10 = $40).

To find the marginal utility per dollar of each option, we divide the marginal utility by the price. For dinners out, the marginal utility per dollar is:

120 utils / $60 = 2 utils/$

For movies, the marginal utility per dollar is:

20 utils / $10 = 2 utils/$

Therefore, the marginal utility per dollar of going out to dinner is twice as high as the marginal utility per dollar of watching a movie.

So, Taylor should spend $60 on dinners out (3 x $20) and $40 on movies (4 x $10). This will maximize Taylor's total utility.

Taylor's Marginal Utility from Watching Movies and from Eating Out