1. Susie's utility function is given as: U(xy) = 2Vx/y. Assume that Susie's budget is initially $100, the price of good x is $1 and the price of each good y is $2. a. Find Susie's utility-maximizing bundle. Note that MU, = Vy/Vx and MU = VA/y www b. Explain why the relationship you found between the optimal quantities of x and y should make intuitive sense, given the way the two goods enter into the utility function and their initial prices. с. If Susie is given the option of having either a cash payment of $30 or a coupon for $1 off every unit of good y, which should she choose? Explain using graphs, words, and/or math.

1. Susie's utility function is given as: U(xy) = 2Vx/y. Assume that Susie's budget is initially $100, the price of good x is $1 and the price of each good y is $2. a. Find Susie's utility-maximizing bundle. Note that MU, = Vy/Vx and MU = VA/y www b. Explain why the relationship you found between the optimal quantities of x and y should make intuitive sense, given the way the two goods enter into the utility function and their initial prices. с. If Susie is given the option of having either a cash payment of $30 or a coupon for $1 off every unit of good y, which should she choose? Explain using graphs, words, and/or math.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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