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25 April, 09:20

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

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  1. 25 April, 13:14
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    Play miniature golf instead of renting the movie.

    Explanation: Marginal utility is the added satisfaction derived from spending an extra unit of money.

    Now we can see that the consumer values time at $12 per hour, and they'll spend a total of $24 on watching the DVD because this will take 2 hours, the consumer will also spend just $12 on miniature golf because this takes just one hour.

    Now factoring the costs of the DVD and the miniature golf into the equation, we have:

    Total cost of renting and watching the DVD:

    $4 + $24 = $28

    Total cost of playing miniature golf:

    $13 + $12 = $25

    We can see that the consumer will spend less in playing miniature, while getting the same marginal utility with the other option.
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