Pablo's utility function is U(x,y)= x+10y- y2/2, where x is the number of x's he consumes per week and y is the number of y's he consumes per week. Pablo has $200 a week to spend. The price of x is $1. The price ofy is currently $5 per unit. Pablo has received an invitation to join a club devoted to the consumption of y. If he joins the club, Pablo can get a discount on the purchase of y. If he belonged to the club, he could buy y for $1 a unit. How much is the most Pablo would be willing to pay to join this club?  

Answer rating: 100% (QA)

To determine how much Pablo would be willing to pay to join the club we need to compare his utility and expenditure with and without the club membersh... View the full answer