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
i want to make assignment

Q. Compute the present value? The offer for the manufacturing rights is for a ten-year period. Annual after-tax cash flow after Year 4 = $660000 Present value of this c

Assignments with the answer for tafe sa 4 edition. Question 11, page 76 and question 39, page 89

What organizations are responsible for governing financial reporting? What is the role of each organization? How have the roles changed in the last 20 years? How might their roles

The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000. 10 marks Summer 2013 Sundry Debtors Rs.160000 Bad Debts written off Rs 9000 Dis

For this problem we will be working with the Ericksen data set for describing the percentage of the population not counted in the US Census from 1980. In this data set we have diff

Ocean Atlantic Co. is a merchandising business. the account balances for Ocean Atlantic co. as of July 1, 2012 (unless otherwise indicated), are as follows: 110 Cash 63,600 1


a) Company X is expected to maintain a constant 7% growth rate in their dividends, indefinitely. If the company has a dividend yield of 4%, what is the required return on their sha

State the role of Accounting information Accounting information has a significant role to play in reporting the extent to which different groups have benefited from the busines