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

Expert Solution

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

Cleopatra spends all her money on bags (B) and shoes (S). Her utility function is U(B,...
Cleopatra spends all her money on bags (B) and shoes (S). Her utility function is U(B, S) = 2B0.5S 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 books. (a) Draw Kleopatra's budget constraint where bag is on the...
Cleopatra spends all her money on bags (B) and shoes (S). Her utility function is U(B,...
Cleopatra spends all her money on bags (B) and shoes (S). Her utility function is U(B, S) = 2B^0.5S^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 books. (a) Draw Kleopatra's budget constraint where bag is on the horizontal...
Lin spends her income on green goods (G) and born goods (B).  Her utility function is Her...
Lin spends her income on green goods (G) and born goods (B).  Her utility function is Her marginal utility for green goods is Her marginal utility for brown goods is Find Lin's demand for brown goods expressed in terms of exogenous parameters
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x....
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x. Her decision making can be modeled by assuming that she maximizes her expected utility. Her current wealth is 100. (All quantities are in hundreds of dollars.) She has the opportunity to buy a security that either pays 8 (the "good outcome") or loses 1 (the "bad outcome"). She can buy as many units as she wishes. For example, if she buys 5 units, she...
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x....
An investor's utility function for money (Bernoulli utility function) is the square root of money: u(x)=√x. Her decision making can be modeled by assuming that she maximizes her expected utility. Her current wealth is 100. (All quantities are in hundreds of dollars.) She has the opportunity to buy a security that either pays 8 (the "good outcome") or loses 1 (the "bad outcome"). She can buy as many units as she wishes. For example, if she buys 5 units, she...
Derek spends all his income on Coke and chips. Derek's utility function is U(x, y) =...
Derek spends all his income on Coke and chips. Derek's utility function is U(x, y) = min(4x, 2x + y), where x is his consumption of Coke (in cans) and y is his consumption of chips (in packets). Derek is consuming 15 cans Of Coke and 10 packets of chips. The price of Coke is $10 per can. a. Graph the indifference curve for Derek that passes through the point (15,10). What is the marginal rate of substitution at (15,10)?...
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes,...
Linda loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the number of times she goes dancing per month, T, is U(S, T) = 2ST, so MUs=2T and MUT = 2S. It costs Linda $50 to buy a new pair of shoes or to spend an evening out dancing. Assume that she has $500 to spend on clothing and dancing. (Hint: See Q&A 4.3.) a. What is the equation for her budget line? Draw...
Leah loves buying shoes and going out to dance. Her utility function for pairs of shoes,...
Leah loves buying shoes and going out to dance. Her utility function for pairs of shoes, X, and the number of times she goes dancing per month, Y, is given by U(x,y)=20XY2+100U(x,y)=20XY2+100    Now suppose that a pair of shoes sells for $10 and it costs Leah $5 to spend an evening out dancing. And assume that she has $90 to spend on clothing and dancing. You are now asked to derive consumer equilibrium. a.     What is the equation for her...
Assume a consumer’s utility function is U = √q1 + 2√q2 and her total income is...
Assume a consumer’s utility function is U = √q1 + 2√q2 and her total income is $90. The price of both good 1 and good 2 is $1. (a) (5 points) What is the bundle that maximizes this consumer’s utility? What is the consumer’s utility level at that point? (b) (5 points) Suppose that the price of good 1 drops to $0.50. What is the new bundle that maximizes this consumer’s utility? What is the consumer’s utility at this point?...
Margaret spends all of her income on t-shirts (x1) and shoes (x2). Her preferences can be...
Margaret spends all of her income on t-shirts (x1) and shoes (x2). Her preferences can be represented by the utility function u (x1, x2) = 2√x1x2. (a) Derive the demand functions for t-shirts and shoes in terms of the price of t-shirts (p1), the price of shoes (p2), and income (m). Show your result on a graph. (b) Draw the Income Offer Curve and Engel Curves (one for each good). (c) Draw the Price Offer Curve and Demand Curves. (d)...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT