The table above shows Danielle's utility from ice cream and romance novels
a) What is Danielle's marginal utility from the 4th novel?
b) The price of ice cream is $5 per gallon and a novel is $10. If Danielle's budget for these two goods is $50 and she buys 2 gallons of ice cream, how many novels can she buy? If she buys 6 gallons of ice cream, what is her marginal utility per dollar spent on novels?
c) Which combination of the two goods is better: 4 gallons of ice cream and 3 novels or 6 gallons of ice cream and 2 novels?
a) Danielle's marginal utility from the 4th novel is 560 - 450 = 110.
b) When Danielle buys 2 gallons of ice cream, she spends $5 × 2 = $10 on ice cream. So Danielle spends the rest of her budget, which is $50 - $10 = $40, on novels. Because the price of a novel is $10, she buys $40 ÷ $10 = 4 novels. When Danielle buys 6 gallons of ice cream, she spends $5 × 6 = $30 on ice cream. So Danielle spends the rest of her budget, which is $50 - $30 = $20, on novels. Because the price of a novel is $10, she buys $20 ÷ $10 = 2 novels. So her marginal utility from the second novel is 320 - 170 = 150 and, since the price of a novel is $10, the marginal utility per dollar is 150 ÷ $10 = 15.
c) 4 gallons of ice cream and 3 novels is better. In both cases Danielle spends all her budget. But if she buys 4 gallons of ice cream and 3 novels, her total utility is 320 + 450 = 770, while if she buys 6 gallons of ice cream and 2 novels, her total utility is 420 + 320 = 740.
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