Question

1. Jeremy is deeply in love with Jasmine. Jasmine lives where cell phone coverage is poor, so he can either call her on the land-line phone for five cents per minute or he can drive to see her, at a round-trip cost of \(2 in gasoline money. He has a total of \)10 per week to spend on staying in touch. To make his preferred choice, Jeremy uses a handy utilimometer that measures his total utility from personal visits and from phone minutes. Using the values in Table 6.6, figure out the points on Jeremy’s consumption choice budget constraint (it may be helpful to do a sketch) and identify his utility-maximizing point.

Short answer

With a total utility of 1120, the highest attainable utility is achieved by combining one journey with 160 minutes of phone time.

Step-by-step solution

Definition

Consumer choice refers to the alternatives that folks make about products and services. after we research consumer choice behavior, we glance at how people make decisions about which things to shop for or consume over time.

Step 2:Explanation

The rows in the problem table do not represent the actual options available on the budget set; that is, the combinations of round trips and phone minutes that Jeremy can pay on his budget. The six-round trips, one of the options given in the challenge, is not even accessible on the budget set. If Jeremy only has $10 and a round trip costs $2 and a phone call costs $0.05 per minute, he could spend it all on five round trips but no phone calls, 200 minutes of phone calls but no round trips, or any mix of the two. With a little algebra, he can see all of his budget alternatives.

Step 3:Calculation

A budget line's equation is as follows:

$Budget=P_{RT}\times Q_{RT}+P_{PC}\times Q_{PC}$

P and Q denote the price and amount of round trips (RT) and phone calls (PC), respectively (per minute). In Jeremy's situation, the budget line equation is,

$$\begin{gathered} \$10=\$2\times Q_{RT}+\$.05\times Q_{PC} \\ \frac{\$10}{\$.05}=\frac{\$2Q_{RT}+\$.05Q_{PC}}{\$.05} \\ 200=40Q_{RT}+Q_{PC} \\ {Q}_{PC}=200-40Q_{RT} \end{gathered}$$

The table below illustrates how many phone minutes may be afforded with the budget if we choose zero through five round journeys (column 1). (column 3). The table below shows the total utility values.

Step 4:Conclusion

Therefore, total utility at each position on the budget line is calculated by adding total utility for round trips and phone minutes at different places on the budget line. The highest possible utility is attained by combining one journey with 160 minutes of phone time, which results in a total utility of 1120.