7. Bob receives utility from days spent traveling on vacation domestically (D) and days spent traveling in a foreign country (F) as given by the utility U(D; F) = DF The price of a day spent traveling domestically is 160 pounds and in a foreign country 200 pounds. Bobís annual budget for traveling is 8000 pounds. (a) Find Bobís utility maximising choice of days traveling domestically and of days travelling in a foreign country. Find also his utility level from consuming that bundle. Suppose that the price of domestic traveling increases to 250 pounds per day. Denoting his budget for traveling x, (suppose by now that it is unknown) find the demand for D and F under the new prices as a function of x.
7. Bob receives utility from days spent traveling on vacation domestically (D) and days spent traveling in a foreign country (F) as given by the utility U(D; F) = DF The price of a day spent traveling domestically is 160 pounds and in a foreign country 200 pounds. Bobís annual budget for traveling is 8000 pounds. (a) Find Bobís utility maximising choice of days traveling domestically and of days travelling in a foreign country. Find also his utility level from consuming that bundle. Suppose that the price of domestic traveling increases to 250 pounds per day. Denoting his budget for traveling x, (suppose by now that it is unknown) find the demand for D and F under the new prices as a function of x.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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7. Bob receives utility from days spent traveling on vacation domestically (D) and days
spent traveling in a foreign country (F) as given by the utility
U(D; F) = DF
The
country 200 pounds. Bobís annual budget for traveling is 8000 pounds.
(a) Find Bobís utility maximising choice of days traveling domestically and of days
travelling in a foreign country. Find also his utility level from consuming that
bundle. Suppose that the price of domestic traveling increases to 250 pounds per day.
Denoting his budget for traveling x, (suppose by now that it is unknown) find
the demand for D and F under the new prices as a function of x.
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