Question

Question 4 [40 Marks] You have seven mornings per week. On each morning, you can either study, go to the rock climbing wall, or sculpt (i.e., make sculptures). If you rock climb, you must be a member of the club. The membership fee is 100 Bobos each week. And, as member, you pay 10 Bobos for each morning of climbing. If you sculpt, you must rent a studio which costs 100 Bobos per month. Each morning you sculp, you use 10 Bobos worth of material.

[15 Marks] Your economics professor has asked you to produce a table showing your marginal cost for each of 7 mornings you might sculpt during a normal week. Your uncle, who has never taken economics, has asked you to explain the table and why the values you wrote down make sense. Provide your answers in sections labelled The Table and The Explanation

[10 Marks] Assume that in October, you rationally climbed two times per week and sculpted three times per week. In November, you know that the daily climbing price will be 5 bobo per morning. Explain, using the costs and benefits of sculping, how you will decide whether to rent a studio in November. Provide your answer in a section labelled November

[9 Marks] Assume that in March you rationally climbed two times per week and sculpted three times per week. A climber from out of town is willing to pay you 50 Bobos per week for your April membership. If you sell, you cannot climb. If this is the only change the professor is aware of, what does your economics professor predict about how often you sculp in April? Explain. Provide your answer in a section labelled April

[6 Marks] Assume that the following March, you rationally climbed two times per week and sculpted three times per week. In April the membership fee for the climbing club will increase 150 bobos per week. If this is the only change the professor is aware of, what does your economics professor predict about how often you sculp in April? Explain. Provide your answer in a section labelled April, redux

Answer 1

SOLUTION:-

The table

Pls see the table which shows how the costs are incurred. In a week when you don't climb even for one day, you won't incur any cost. But if you climb even once you will incur 100+10. Similarly in a week if you don't sculpt it doesn't mean that you don't incur any cost. It will depend on whether for that month you sculpt or not. And then there's the cost for material which you incur every morning you sculpt. Now for a normal week (during a month for which the monthly cost has already been paid), your marginal cost of sculpting would be 10 bobos per morning.

	Monthly cost	Weekly cost	Daily cost
Study	0	0	0
Sculpting	100	0	10
Rock climbing	0	100	10

November

Your daily cost of climbing would be down to 5 bobos, so you would be saving 5*5*4 = 100 bobos (5 days per week for 4 weeks for the month), if you climb every day of November instead of sculpting. There would be no differece to the weekly cost of climbing as you would still need to pay it for all the 4 weeks of November. If, however, you decide to do this, you will be saving the 100 bobos of studio rental as well.(The saving in daily cost has already been calculated in the 5*5*4 above).

April

Your are saying that you will pay 100 bobos per week for your climbing membership in April, sell it to someone for the (50 bobos per week) and not climb at all in April. I don't think it would make sense at all. you would most likely continue with what you did in March, i.e., climb two times a week and sculpt 3 times a week.

April redux

If you continue to do what you did in March you would end up incurring 200 bobos extra in April of next year, i.e., (150-100 for each week) due to the rise in the weekly cost of climbing. you may choose to do climbing and sculpting every other week, instead of doing both every week. This will help you save the weekly cost of climbing for the two weeks you only sculpt.

THANK YOU

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