Suppose utility for a consumer of movies (x) and golf (z) is U = 20x0.6z0.4. The...

Suppose utility for a consumer of movies (x) and golf (z) is U = 20x^0.6z^0.4. The consumer has set aside $1000 to consumer movies and golf for a year.
1. If the price of movies is $20 and the price of golf is $30, what is the utility-maximizing consumption of movies and golf? (Use demand functions formula to solve).
2. Show the optimal consumption bundle on a graph, showing a budget line (with intercepts), an indifference curve, and the optimal choice.
3. Now suppose the price of golf falls to $25. What is the new utility-maximizing consumption of movies and golf?
4. Show the new situation on your graph, including the new BL (with intercepts), new indifference curve, and new optimal choice. Also, show the price-consumption line.
5. What is the price elasticity of demand for golf? To calculate, use the midpoint method, where percentage change for a variable x is (change in x)/(average x).

Expert Solution

Rahul Sunny answered 2 years ago

Suppose utility for a consumer of movies (x) and golf (z) is U = 20x0.6z0.4. The consumer has...

Suppose utility for a consumer of movies (x) and golf (z) is U = 20x0.6z0.4. The consumer has set aside $1000 to consumer movies and golf for a year. If the price of movies is $20 and the price of golf is $30, what is the utility-maximizing consumption of movies and golf? (Use demand functions formula to solve). Show the optimal consumption bundle on a graph, showing a budget line (with intercepts), an indifference curve, and the optimal choice. Now suppose the price...

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