Microeconomics - Utility, Marginal Utility, MRS

Reply Wed 26 Dec, 2018 02:18 pm
I have a feeling that this may be a very easy one but I have no idea how to do it. If someone could help me I would be forever grateful.

Suppose that the utility that a student gets from a course of lectures is given by: U = – 35 LT + 17.5 MB – 7 C
Where LT is lecture time (the number of hours of lectures), MB is the number of minutes of break that the lecturer gives each lecture, and C is the cost in euro of the course text book.

(a) According to this utility function, what is the marginal utility of an extra hour of lecture time?

(b) Suppose that the course lecturer considers switching to a new textbook that is 10 euro more expensive than the current textbook. How many extra minutes of break would the lecturer need to give per lecture in order to keep students indifferent between the course with the new textbook (and increased breaks), and the old course (i.e. the course with the old book and shorter breaks)?

(c) According to the specified utility function, is the marginal utility of each characteristic of the lecture course increasing, constant, or diminishing? Do you think that this is reasonable in this example?
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Reply Mon 3 Jun, 2019 12:07 am
(a) Since the utility function is linear with all the 3 variables, calculating the marginal utility becomes easy. According to the function, with every hour of Lecture Time (L.T.) U decreases by 35 units, i.e. M.U. for L.T. is -35.
(b) When the cost of text book increases by 10 euros, U decreases by 70 units which has to be made up for by increasing M.B. Therefore extra M.B. K(say)*17.5=70, or K=4. So there should be 4 mins of extra break time.
(c) MU for LT and C are decreasing and M.B is increasing. This should not be reasonable because in plain words, the more lecture time is there the less utility the students find in the lecture. Which means that students prefer short lectures with cheaper books and more breaks
cicerone imposter
Reply Thu 27 Jun, 2019 08:47 pm
I personally found that talking to other students in the same class was a good way to understand concepts. Also, tutoring students in a subject is a good way to re-enforce your knowledge, and how to teach others. It's a good skill to have after you graduate from college.
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