1. Mary has a utility function u(x, y) = 2lnx + 4y. In the initial situation: pg = 2, pg = 4, Mº = 100. In the new situation: p = 3, p3 = 3, M² = 90. (a) Calculate the utility level u° for the initial situation. (b) Calculate the expenditure minimizing amount to obtain utility u° at the new prices.
1. Mary has a utility function u(x, y) = 2lnx + 4y. In the initial situation: pg = 2, pg = 4, Mº = 100. In the new situation: p = 3, p3 = 3, M² = 90. (a) Calculate the utility level u° for the initial situation. (b) Calculate the expenditure minimizing amount to obtain utility u° at the new prices.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Please help me to solve questions (a) (b) (e). (especially question e). thank you!
Transcribed Image Text:1. Mary has a utility function u(x, y) = 2lnx + 4y. In the initial situation:
p: = 2, p9 = 4, Mº = 100. In the new situation: p = 3, p} = 3, M² = 90.
(a) Calculate the utility level u° for the initial situation.
(b) Calculate the expenditure minimizing amount to obtain utility uº at the new
prices.
(c) Use your findings from (a) and (b) to calculate the CV from the change.
(d) Consider the alternative situation, where p = 3, p} = 4, M² = 100. Calculate the
CV from the change.
(e) Based on what you know about the utility function, do you expect the CV in part
(d) to be smaller, larger, or equal to the change in CS computed using the demand
curve for good x?
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