Ben spends $100 per month on playing video games (G) at an arcade or going to movies
Question:
Ben spends $100 per month on playing video games (G) at an arcade or going to movies (M). His utility function is U(G,M)=2ln(G)+M The price of G is $1 and the price of M is $10. Answer the following questions: Ben would like to choose the consumption of G and M so that he maximizes his utility. How many G and M would Ben like to consume? Label the x-axis as G for quantities of G and y-axis as M for quantities of M. Compute his maximum level of satisfaction. Draw the following in the same graph: i. an indifference curve that represents Ben's preferences, ii. his budget line and iii. his optimal consumption bundle. Derive Ben's demand function for M. Is M a normal good? What happens to the demand of M as price of M increases and income is held constant?
Macroeconomics Principles Applications And Tools
ISBN: 9780134089034
7th Edition
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez