Suppose you are at the grocery store to purchase bagels (x) and doughnuts (y) for a...

 

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Suppose you are at the grocery store to purchase bagels (x) and doughnuts (y) for a breakfast with your friends. Let the group's preferences over bagels and doughnuts be represented by u(x, y) = 5x + y. (a) What does this utility function tell you about your friend group's preferences over bagels and doughnuts? (b) Assume the price of a bagel is p = 10, the price of a doughnut is py = 10, and that you have M = 100 to spend. How many bagels and doughnuts will you purchase? (c) Now imagine there is a sale on doughnuts, and the price falls to py= 1. Assuming everything else remains the same, how many bagels and doughnuts will you buy? (d) Finally, assume there is a sale on both bagels and doughnuts, and that the new prices are Pr = 5 and py = 1. How many bagels and doughnuts will you purchase in this case? Suppose you are at the grocery store to purchase bagels (x) and doughnuts (y) for a breakfast with your friends. Let the group's preferences over bagels and doughnuts be represented by u(x, y) = 5x + y. (a) What does this utility function tell you about your friend group's preferences over bagels and doughnuts? (b) Assume the price of a bagel is p = 10, the price of a doughnut is py = 10, and that you have M = 100 to spend. How many bagels and doughnuts will you purchase? (c) Now imagine there is a sale on doughnuts, and the price falls to py= 1. Assuming everything else remains the same, how many bagels and doughnuts will you buy? (d) Finally, assume there is a sale on both bagels and doughnuts, and that the new prices are Pr = 5 and py = 1. How many bagels and doughnuts will you purchase in this case?

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step 15 The utility function represents the level of utility derived from the consumption of a good or a combination of the goods The consumer will ma... View the full answer