Question
In: Economics
Jessica spends all her money on bags(B) and shoes(S). Her utility function is U(B,S) = 2...
Jessica spends all her money on bags(B) and shoes(S). Her utility function is U(B,S) = 2 * B^0.5 * S^0.5 . Her income is 150$. Price of shoes is Ps = 2. Price of bags depends on the number of bags purchased. Bags cost $5 each if she purchases between 1 and 8 bags. If she purchases more than 8 bags, the price falls to $2 for all subsequent bags.
a) Draw Jessica's budget constraint where bag is on the horizontal axis.
b) Solve Jessica's optimal bundle.
c) Suppose Jessica's utility function U(B,S) = 0.5 * ln(B) + 0.5 * ln(S). What is her optimal bundle?( Hint: Compare the MRS for both utility functions)
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
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0.5
. Her income is
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expected utility. Her current wealth is 100. (All quantities are in
hundreds of dollars.)
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(d)...
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