Chapter 6, Problem 1SCQ

Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a round—trip cost of $\$\text{2}$ in gasoline money. He has a total of $\$\text{1}0$ per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in Table 6.6, figure out the points 011 Jeremy’s consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point.

To determine

Using the values in given table, find out the points on Jeremy’s consumption choice budget constraint and identify his utility maximizing point?

Answer to Problem 1SCQ

The maximum total utility is 1120 on round 1 with 80 utility and 160 minutes of phone minutes within the given $10.

Explanation of Solution

It is given that Jeremy has total $10 to spend ,a round trips costs him $2 and phone calls costs $0.05 per minute. With the given money, he can either go for 5 round trips or no phone calls. second option is no round trips and 200 minutes of phone calls. there can be the combination of two in between. hence the budget constraint formulae is

Total amount=Price of round trips*Quantity of round trips+ Price of phone calls*Quantity of phone calls

A =P(r)*Q(r)+P(pc)*Q(pc)

$10=$2*Q(r)+$0.05*Q(pc)

dividing the whole equation by $0.05

$10/0.05=($2*Q(r)+$0.05*Q(pc))/0.05

200= 40*Q(r)+Q(pc)

Q(pc)=200-40*Q(r)

Hence with the given budget constraint and table, below table is constructed which shows zero to five round trips and how many phone minutes can be afforded with the given budget with total utility of each.

Economics Concept Introduction

Concept introduction:

Budget Constraint: It represent all the possible combination of goods and services that a consumer can purchase with the given prices and income.