a. A young connoisseur has $600 to spend to build a smallwine cellar. She enjoys two vintages in particular: a 2001French Bordeaux (wF) at $40 per bottle and a less expensive 2005 California varietal wine (wC) priced at $8. Ifher utility is U (wF, wC))=wF2/3 w C1/3 ,then how much of each wine should she purchase?b. When she arrived at the wine store, this young oenologistdiscovered that the price of the French Bordeaux hadfallen to $20 a bottle because of a decrease in the valueof the euro. If the price of the California wine remainsstable at $8 per bottle, how much of each wine shouldour friend purchase to maximize utility under thesealtered conditions?c. Explain why this wine fancier is better off in part (b)than in part (a). How would you put a monetary value onthis utility increase?
a. A young connoisseur has $600 to spend to build a small
wine cellar. She enjoys two vintages in particular: a 2001
French Bordeaux (wF) at $40 per bottle and a less expensive 2005 California varietal wine (wC) priced at $8. If
her utility is
U (wF, wC))=wF2/3 w C1/3
,
then how much of each wine should she purchase?
b. When she arrived at the wine store, this young oenologist
discovered that the
fallen to $20 a bottle because of a decrease in the value
of the euro. If the price of the California wine remains
stable at $8 per bottle, how much of each wine should
our friend purchase to maximize utility under these
altered conditions?
c. Explain why this wine fancier is better off in part (b)
than in part (a). How would you put a monetary value on
this utility increase?
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