Marc has a budget of $20 a month to spend on root beer and DVDs. The price of root beer is $5 a bottle, and the price of a DVD is $10. Figure 2 illustrates his preferences. Use Figure 2 to work Problems 1 to 3.
1. What is the relative price of root beer in terms of DVDs and what is the opportunity cost of a bottle of root beer? Draw a graph of marc’s budget line with DVDs on the x-axis.
2. What quantities of root beer and DVDs does marc buy? At his consumption point, calculate his marginal rate of substitution of DVDs for root beer.

 

Transcribed Image Text:

IGURE 2 Root beer (bottles per month) DVDs (number per month) IGURE 2 Root beer (bottles per month) DVDs (number per month)

Answer rating: 100% (QA)

Answer 1 The relative price of root beer is 12 DVD The relative price of root beer is the price of root beer divided by the price of a DVD The price o... View the full answer