Example of equalancy the price ratio, Financial Accounting

Natasha's income is $300 per month. She spends all of it on tickets to concerts and films. A concert ticket costs $15 and a fi lm ticket costs $10. Her marginal rate of substitution for concerts with films, MRSCF , is F/C, where C stands for the number of concert tickets and F stands for the number of films.  Fractions are allowed-for example, if she buys half of a concert ticket, that means she goes to a concert every other month). How many film tickets will she purchase, and how many concert tickets?

The Solution Notice that MRSCF decreases as C rises and F falls. Therefore, each of Natasha's indifference curves has a declining MRS. To find a best choice, we look for a bundle on her budget line that satisfies the tangency condition.

At Natasha's best choice, her marginal rate of substitution between films and concerts equals the price ratio: MRSCF _ PC/PF . Substituting the information contained in the statement of the problem gives us the following: F/C _ 15/10 _ 1.5. In other words, Natasha purchases 1.5 times as many movie tickets as concert tickets.

The formula for Natasha's budget line is PCC _ PFF _ 300. Substituting the values of the prices into this formula, we have 15C _ 10F _ 300. Using the fact that F _ 1.5C gives us 15C _ 10(1.5C) _ 300, or 30C _ 300. So C _ 10, and F _ 15.

Natasha purchases 10 concert tickets and 15 movie tickets.

 

Posted Date: 3/22/2013 1:54:12 AM | Location : United States







Related Discussions:- Example of equalancy the price ratio, Assignment Help, Ask Question on Example of equalancy the price ratio, Get Answer, Expert's Help, Example of equalancy the price ratio Discussions

Write discussion on Example of equalancy the price ratio
Your posts are moderated
Related Questions
A of Surat consign goods to B of Jaipur to be sold at or above invoice price. B is entiled to get a commission of 8% on sales at invoice price plus 25% of any surplus price reali

Ask question Sean Corp. issued a $60,000, 10 year bond at the face rate of 8% annually on 1/1/X0. The market rate was 10%. How much cash will the bond investors receive at the end

Is goodwill a fictitious asset?

ABC Corportation purchased $15,000 of office furniture by putting down $7000 soqn in cash and the rest on accout

Q. Report on the management of foreign trade risks? Your company is probable to face three types of risk in connection with its foreign trade. These are as: (1) Foreign exch

Changes in accounting estimates In preparing financial statements, it may be difficult to arrive at exact values for certain items to be presented in the financial statements and

Assets   1) The classification of investments in the Balance Sheet will be under a few broad headings with schedules listing the individual assets. Where the Trustees Act has been


Q. What do you mean by suspense account? How are errors in accounting classified? Suspense account: A suspense account is an account, which is opened when the trail balance does

For several firms trade payables - suppliers of goods and services - represent the major component of current liabilities the amounts owed by the company which have to be repaid wi