Midterm ReviewHomework Assignment 5 1. Max enjoys windsurfing (W) and snorkeling. He obtains the following total utility from eachof these sports:Half-hours(per month) TUWMU TUSMUS1 60 202 110 383 150 534 180 645 200 706 206 757 211 798 215 829 218 84 (a) Calculate Max’s marginal utility from windsurfing and from snorkeling. (You may add thisinformation to the above table with columns for the MU for windsurfing and the MU forsnorkeling.(b) If Max has $35 to spend, and equipment for windsurfing rents for $10 per half-hour, whilesnorkeling equipment rents for $5 per half-hour, how long will Max choose to windsurf? Snorkeling? Why? (c) What is Max’s budget constraint? Explain verbally and write the equation for his budgetconstraint below.(d) Now, suppose Max’s sister gives him $20 to send on his leisure pursuits, so he now has $55to spend. How long will Max windsurf? Snorkeling? (e) If Max has $55 to spend and the rent on windsurfing equipment is cut to $5 per half-hour,how will Max now spend his time windsurfing? Snorkeling? Additional Problem 1: Utility AnalysisAssume that Maxi Mizer is trying to decide which combination of ice cream cones, Good A, and magazines, Good B, she should purchase with her limited income of $20. Maxi's preferences for ice cream cones and magazines, Goods A and B, are given in the table below. Further assume that the prices of ice cream cones and magazines, Goods A and B, are $2 and $4 respectively. (You may use the front and back of this page to complete your answer.Marginal Utility of Marginal Utility ofUnit of Good Ice Cream Cones (A) Magazines (B) 1 20 482 16 403 14 364 12 325 10 246 8 127 6 8a) How many ice cream cones and magazines will Maxi purchase? . Why?(You must show all work to receive full credit).b) Now assume that the price of magazines falls to $2. How many ice creamcones and magazines will Maxi purchase now? (You must show all work toreceive full credit).c) On the basis of the information determined this far, determine the demandcurve for magazines. Provide a graph of the demand for magazines. Does the demand for magazines follow the "law of demand"? (Yes;No)Give reasons to explain the "law of demand" and explain them briefly.1)2)3)d) Compute the price elasticity of demand for the price change for magazinesindicated in part (b). Interpret this elasticity coefficient and provide the formulafor calculations for this price elasticity.Additional Problem #3: Consumer and Producer SurplusNow consider the market for pizza. Suppose that the market demand for pizza is given by theequation P = 40 – 4QD, and the market supply for pizza is given by the equation P = 10 + 2QS, whereQD = quantity demanded, QS = quantity supplied, P = price consumers pay (per pizza) and the priceproducers receive (per pizza).Graph the supply and demand schedules for pizza and indicate the equilibrium price and quantity.(Your answer must contain your complete algebraic solution). Calculate the consumer surplus andproducer surplus and identify these areas in the graph below.(Be sure to label the axes and functions,and number your intercepts.)Equilibrium Price: Equilibrium Quantity: (Show your complete algebraic solution for the equilibrium price and quantity in thespace below.)Consumer Surplus at Equilibrium: (Show all work.)Producer Surplus at Equilibrium: (Show all work.)Handout 2: Market AnalysisThe table below gives the individual demands’ of Lisa and Chuck for movies:Quantity of movies demanded / mo.Price / movie Lisa Chuck$7 1 06 2 05 3 04 4 13 5 22 6 3a) Calculate the market demand for movies assuming that only Lisa and Chuck have individual demands for movies. Explain this market demand.b) Graph the market demand for movies found in (a). Does this market demand follow the “law of demand.”? Explain and offer reasons for this law.c) Calculate the price elasticity of demand for movies given your market demand in (a) for each price change. Is demand elastic, unit elastic, inelastic? Explain in detail. (Show all your workand give the complete elasticity formula).d) Now, assume that 7 movies are offered per month. (1) Determine the market price for each movie. Explain your reasoning. (2) If Chuck’s demand for movies increases, as shown below, calculate the new market price for movies if 7 movies are offered per month.Quantity of movies demanded/moPrice / movie Chuck$7 06 05 14 33 42 6What factor or factors could have increased Chuck’s demand for movies?Additional Problem 3: Market AnalysisConsider the market for bus service. First draw a graph depicting market equilibrium for busservice. Then, for each of the events given below, analyze what effects each event will have on themarket equilibrium for bus service, i.e. effect on equilibrium price, equilibrium quantity, demandor quantity demanded, supply or quantity supplied. You must draw separate graphs for each of thefollowing events. Remember to label all axes, functions, and equilibrium points in your graphprecisely.(a) Bus drivers go on strike in order to pressure their employers for wage increases.(b) The number of parking spaces decreases due to new land use planning requirements.(c) Employers with 100 or more employees offer subsidized bus passes to their employees.(d) Two thousand miles of Metrolink and commuter rail service are opened.(e) Congestion on the freeways increases with no plans to fund construction of new freewaylanes.Additional Problem 2: ElasticityFor each of the elasticity cases given below, verbally explain what the elasticity coefficient means, and offer an interpretation of the elasticity coefficient.(a) The income elasticity of movies is 3.41.(b) The price elasticity of tobacco is -0.61.(c) The cross price elasticity of popcorn with respect to the price of soft drinks is 2.38.(d) The price elasticity of rail service is 0.89.(e) The income elasticity of dental services is 1.00.400 1000 1200 1200Additional Problem #1: Consumer and Producer SurplusThe graph below shows the demand and supply of rental housing for Microtown. $/month S 800 600 200