1. Jesper consumes granola (g) and whole milk (w). His utility function is u(g, w) = 2Vg+ 2 yw, and he has $120 to spend. Giant sells granola for $4 per pound and milk for $2 per gallon. Safeway sells granola for $2 per pound and milk for $4 per gallon. (i) Find the optimal bundle if Jesper shops at Giant. (ii) Find the optimal bundle if he shops at Safeway. (iii) Explain why the bundle Jesper purchases at Giant would cost more at Safeway, and vice versa. (iv) Suppose that Jesper can purchase from Sam's Club instead by paying an "entry fee," f, and then paying prices $1.50 for granola and $3 for milk. Under what conditions will Jesper choose to shop at Sam's Club? (Your answer will be an algebraic expression involving f.)
1. Jesper consumes granola (g) and whole milk (w). His utility function is u(g, w) = 2Vg+ 2 yw, and he has $120 to spend. Giant sells granola for $4 per pound and milk for $2 per gallon. Safeway sells granola for $2 per pound and milk for $4 per gallon. (i) Find the optimal bundle if Jesper shops at Giant. (ii) Find the optimal bundle if he shops at Safeway. (iii) Explain why the bundle Jesper purchases at Giant would cost more at Safeway, and vice versa. (iv) Suppose that Jesper can purchase from Sam's Club instead by paying an "entry fee," f, and then paying prices $1.50 for granola and $3 for milk. Under what conditions will Jesper choose to shop at Sam's Club? (Your answer will be an algebraic expression involving f.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Please answer just the number IV part.
Transcribed Image Text:1. Jesper consumes granola (g) and whole milk (w). His utility function is u(g, w) = 2/g+
2 yw, and he has $120 to spend. Giant sells granola for $4 per pound and milk for $2 per
gallon. Safeway sells granola for $2 per pound and milk for $4 per gallon.
%3D
(i) Find the optimal bundle if Jesper shops at Giant.
(ii) Find the optimal bundle if he shops at Safeway.
(iii) Explain why the bundle Jesper purchases at Giant would cost more at Safeway, and
vice versa.
|(iv) Suppose that Jesper can purchase from Sam's Club instead by paying an "entry fee," f,
|and then paying prices $1.50 for granola and $3 for milk. Under what conditions will
Jesper choose to shop at Sam's Club? (Your answer will be an algebraic expression
involving f.)
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