Question

A consumer has two basic choices: rent a DVD movie for $4.00 and spend 2 hours watching it, or spend $13 for a miniature golf game that takes 1 hour. If the marginal utilities of the movie and the miniature golf game are equal, and the consumer values time at $12 an hour, the rational consumer will most likely:a.rent the movie instead of playing miniature golf. b.play miniature golf instead of renting the movie. c.be indifferent between the movie and the miniature golf game. d.not have enough basis for making a utility-maximizing decision.

Answer 1

Answer:

The correct answer is option b.

Explanation:

The direct cost of a movie is $4.

The opportunity cost of 2 hours of time is $12×2= $24.

The total cost of watching the movie will be $24 + $4 = $28

The direct cost of playing a game of miniature golf is $13.  

The opportunity cost of 1 hour time in playing is $12.

The total cost of playing golf is $13 + $12 = $25

The marginal utility derived from both are same.  

Since the cost incurred in playing golf is comparatively lower, a rational consumer will consume play golf instead of renting a movie.