Question

Refer to the table below. If the subscription price for a sports app is $2 per week, the subscription price for a game app is $1 per week, and a student has $9 per week to spend, what quantities will she purchase at a consumer optimum?

Quantity of Sports App per week (Qs)	Marginal Utility (MUs)	Quantity of Game Apps per week (Qg)	Marginal Utility (MUg)
1	1,200	1	1,700
2	1,000	2	1,400
3	800	3	1,100
4	600	4	800
5	400	5	500
6	100	6	200

NOTE: Consumer Optimum is reached at MUsPs=MUgPg

Hint: Create 2 more columns to find out MUs/Ps , MUg/Pg

Answer 1

Ans: She will purchase 2 Sports App and 5 Game Apps.

Explanation:

Utility maximization condition is where ;

• Entire given money outlay must be spent on both the goods.
• MUs / Ps = MUg /Pg

Budget constraint;

Y = Ps * Qs + Pg * Qg

$9 = ( $2 * 2 ) + ( $1 * 5 )

Quantity of Sports App per week ( Qs)	Marginal Utility (MUs)	MUs /Ps	Quantity of Game Apps per week ( Qg)	Marginal Utility (MUg)	MUg /Pg
1	1200	600	1	1700	1700
2	1000	500	2	1400	1400
3	800	400	3	1100	1100
4	600	300	4	800	800
5	400	200	5	500	500
6	100	50	6	200	200