Jon has an income of $165. He wants to purchase berries (good z) and the price...
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Jon has an income of $165. He wants to purchase berries (good z) and the price of berries is $6. The other good (good y) is a composite good, which stands for everything else that Jon might want to consume other than berries. The composite good is measured in dollars to be spent other than berries, and the price of the composite good is $1. Jon's utility function is given as u(x, y) = 60√x+y (a) Write down Jon's utility maximization problem. (b) Find the marginal utility of berries. (c) Find the marginal utility of the composite good. (d) Find the marginal rate of substitution. (e) Draw the graph of Jon's budget constraint and indifference curves. (f) Find the optimal bundle (r", y") and denote it on the graph in part (e) Suppose that the price of berries decreases to $3. We want to decompose the price effects on apples into substitution effects and income effects. (g) Write down Jon's new budget constraints on the graph in part (e) 1 (h) Find the optimal bundle (r", y") and denote it on the graph in part (e) (i) Let m' be the amount of money income that will just make the bundle (x, y) from part (f) affordable. Find the value of m'. (j) Find the optimal bundle (r', y) under p. 3, p.= 1 and m' (k) Compute the substitution effects of berries; a'r* (1) Compute the income effects of berries; a"- r Jon has an income of $165. He wants to purchase berries (good z) and the price of berries is $6. The other good (good y) is a composite good, which stands for everything else that Jon might want to consume other than berries. The composite good is measured in dollars to be spent other than berries, and the price of the composite good is $1. Jon's utility function is given as u(x, y) = 60√x+y (a) Write down Jon's utility maximization problem. (b) Find the marginal utility of berries. (c) Find the marginal utility of the composite good. (d) Find the marginal rate of substitution. (e) Draw the graph of Jon's budget constraint and indifference curves. (f) Find the optimal bundle (r", y") and denote it on the graph in part (e) Suppose that the price of berries decreases to $3. We want to decompose the price effects on apples into substitution effects and income effects. (g) Write down Jon's new budget constraints on the graph in part (e) 1 (h) Find the optimal bundle (r", y") and denote it on the graph in part (e) (i) Let m' be the amount of money income that will just make the bundle (x, y) from part (f) affordable. Find the value of m'. (j) Find the optimal bundle (r', y) under p. 3, p.= 1 and m' (k) Compute the substitution effects of berries; a'r* (1) Compute the income effects of berries; a"- r
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a Jons utility maximization problem is Maximize uxy 60x y Subject to 6x y 165 b The m... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
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