Question

In: Economics

1. Homer Simpson gets a monthly salary of $90, which he spends on donuts and other...

1. Homer Simpson gets a monthly salary of $90, which he spends on donuts and other goods. The donut store charges a price of $3 per donut.

  1. Homer always consumes donuts with other goods – 2 units of other goods with 1 donut. Show the indifference map of Homer and determine his best affordable bundle. Briefly explain your method. (5 points)
  2. The donut store changes its pricing policy. For the first 10 donuts, the price is still $3, but it is $2 per donut for purchases more than 10 donuts. Draw the budget line of Homer. Show the affordable set. Briefly explain your method. (5 points)

Solutions

Expert Solution


Related Solutions

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly...
Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for...
A man gets a job with a salary of $38,900 a year. He is promised a...
A man gets a job with a salary of $38,900 a year. He is promised a $2,430 raise each subsequent year During a 9-year period his total earnings are________
Jeff has a monthly income of $400, which he spends each month on dinners (which cost...
Jeff has a monthly income of $400, which he spends each month on dinners (which cost $20 each) and movies. He finds that he maximizes his utility by spending half his income on dinners and ha lf on movies. His marginal rate of substitution at this bundle of goods is 0.4 (measured with dinners on the horizontal axis). a. Given this information, what is the price of movies? b. Draw Jeff's budget constraint and indifference curve at this optimal bundle....
A man gets a job with a salary of 38600 dollars a year. He is promised...
A man gets a job with a salary of 38600 dollars a year. He is promised a 2710 dollars raise each subsequent year. His total earning for a 8-year period is
A man gets a job with a salary of 35700 dollars a year. He is promised...
A man gets a job with a salary of 35700 dollars a year. He is promised a 2830 dollars raise each subsequent year. His total earning for a 9-year period is dollars. Suppose you go to a company that pays 0.04 for the first day, 0.08 for the second day, 0.16 for the third day and so on. If the daily wage keeps doubling, what will your total income be for working 30 days ? Total Income =    Determine...
On July 1, Homer Simpson signed a 30-year home mortgage contract in the amount of $300,000....
On July 1, Homer Simpson signed a 30-year home mortgage contract in the amount of $300,000. The interest rate on the mortgage is 4.35%compounded monthly, making the monthly payments $1,493.44. The first payment is due on August 1 and the second payment is due on September 1. Homer is a dedicated accountant, so he records all of his household transactions in debit-and-credit format. The journal entry to record the second payment on September 1 includes A DEBIT to Interest Expense...
James has a $100 monthly exercise budget, which he spends at Tarheel Gym on yoga classes...
James has a $100 monthly exercise budget, which he spends at Tarheel Gym on yoga classes (Y) and spin classes (S). The price of yoga class is $10, and the price of a spin class is $5. Draw his budget constraint for each of the following scenarios. Use a separate graph for each part and label all axes, intercepts and the coordinates of any kink points. Treat each case separately and graph yoga classes on the x-axis and spin classes...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT