A consumer has preferences on Amazon original shows (x), and the composite good (y) described as u(x,y) = x2y (HINT: MUx = 2xy and MUy = x2) and she has I = $300 budget in total. Assume pY = $1, so we can think of y as the saved dollars in her pocket for other uses. Now, if she is not an amazon prime member, each show costs pX = $10, but if she is a prime member, then pX = $4. Amazon prime membership costs $120. (a) Draw her feasible budget set on the x-y axis for the no-prime-membership case, and the prime-membership case, separately. (b) If she chooses not to be a prime member, what is her optimal bundle (x,y) ? (c) If she chooses to become a prime member, what is her optimal bundle (x,y) ? (d) What is her optimal utility in (b)?in (c)? Would she want to become a prime member?
A consumer has preferences on Amazon original shows (x), and the composite good (y) described as u(x,y) = x2y (HINT: MUx = 2xy and MUy = x2) and she has I = $300 budget in total. Assume pY = $1, so we can think of y as the saved dollars in her pocket for other uses. Now, if she is not an amazon prime member, each show costs pX = $10, but if she is a prime member, then pX = $4. Amazon prime membership costs $120.
(a) Draw her feasible budget set on the x-y axis for the no-prime-membership case, and the prime-membership case, separately.
(b) If she chooses not to be a prime member, what is her optimal bundle (x,y) ?
(c) If she chooses to become a prime member, what is her optimal bundle (x,y) ?
(d) What is her optimal utility in (b)?in (c)? Would she want to become a prime member?
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