Final answer:
To find the utility-maximizing choice of phone minutes and round trips for Jeremy, we need to calculate the marginal utility and compare the total utilities at different points on the budget line. The provided text suggests the highest utility is at the combination of one trip and 160 minutes of phone time with a total utility of 1120. A decrease in a product's price would generally lead to an increase in purchases due to the law of demand, lower opportunity cost, and an increase in real income.
Step-by-step explanation:
To confirm the choice of phone minutes and round trips that maximize Jeremy’s utility, we would calculate the marginal utility (MU) of each option by analyzing the change in total utility with each additional unit of consumption, such as round trips and phone minutes. Marginal utility is computed as the change in total utility divided by the change in quantity of the good or service. Initially, as Jeremy consumes more of a good, both total utility and marginal utility increase. However, marginal utility tends to diminish as more of a good is consumed due to the law of diminishing marginal utility.
Given that the highest total utility mentioned is for the combination of one trip and 160 minutes of phone time with a total utility of 1120, we can infer that Jeremy maximizes his utility at this point. None of the options provided (a, b, c, d) corresponds to this combination. Therefore, if the information is correct, none of the given options would be the utility-maximizing choice for Jeremy. His best choice would be the one trip and 160 phone minutes combo based on the provided total utility.
A decrease in a product’s price would lead to an increase in purchases for several reasons. Firstly, the law of demand suggests that consumers will buy more of a product when its price falls. Secondly, a lower price means that consumers face a lower opportunity cost when buying the product, thereby allowing them to purchase more within their budget. Thirdly, if a product is normal, a decrease in price increases the real income of consumers, meaning they can buy more of the product without sacrificing other goods.