6. Diane consumes lemons and bottles of water, which are denoted by I and w, respec-tively. She likes to squeeze the lemon juice into her water to spice things up a little!Her utility from consuming these two goods is given by the function U-1w. Theprice of a lemon is p = 2 and the price of a bottle of water is P = 5. Diane's incomeis m = 30. For the questions below (which continue on the next page), treat lemonsas the good that goes on the horizontal axis of an indifference curve diagram. Solve for her optimal bundle of lemons and water shows (1*, w*). Show yoursolution graphically by placing lemons on the horizontal axis and water on thevertical axis. Label Diane's optimal bundle as bundle "A" and be sure to labelall intercepts of the budget line.(d)Diane's income increases to m' = 60 (prices stay the same). Solve for her neoptimal bundle at this income level. Show your solution graphically, labelithe new bundle as "B" and label all intercepts associated with the new budline. Based on your answer, are lemons a normal or inferior good?

A utility function is representative of the satisfaction that an individual receives from consuming…

6. Diane consumes lemons and bottles of water, which are denoted by I and w, respec- tively. She likes to squeeze the lemon juice into her water to spice things up a little! Her utility from consuming these two goods is given by the function U =w. The price of a lemon is p =2 and the price of a bottle of water is p = 5. Diane's income is m 30. For the questions below (which continue on the next page), treat lemons as the good that goes on the horizontal axis of an indifference curve diagram.

6. Diane consumes lemons and bottles of water, which are denoted by I and w, respec- tively. She likes to squeeze the lemon juice into her water to spice things up a little! Her utility from consuming these two goods is given by the function U =w. The price of a lemon is p =2 and the price of a bottle of water is p = 5. Diane's income is m 30. For the questions below (which continue on the next page), treat lemons as the good that goes on the horizontal axis of an indifference curve diagram.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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