Ahmad dislikes plain coffee, unless he eats something sweetie with the coffee. In particular, he likes to consume Starbuck's coffee (X₂) only if he is compensated by one caramel doughnut (X₁) while drinking the plain coffee. Otherwise, drinking plain coffee is not desirable for him. Ahmad has budget M, Ahmad's target utility is U = K, the marginal utility of one doughnut is A, and his marginal disutility of one plain coffee without doughnut is " - B". A. Write down Ahmad's consumer optimization (objective and constraints). B. Derive Ahmad's demand functions for plain coffee (X₂) and doughnuts (X₁). C. What is Ahmad's maximum utility?

Ahmad dislikes plain coffee, unless he eats something sweetie with the coffee. In particular, he likes to consume Starbuck's coffee (X₂) only if he is compensated by one caramel doughnut (X₁) while drinking the plain coffee. Otherwise, drinking plain coffee is not desirable for him. Ahmad has budget M, Ahmad's target utility is U = K, the marginal utility of one doughnut is A, and his marginal disutility of one plain coffee without doughnut is " - B". A. Write down Ahmad's consumer optimization (objective and constraints). B. Derive Ahmad's demand functions for plain coffee (X₂) and doughnuts (X₁). C. What is Ahmad's maximum utility?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Check if the following utility functions represent the same preferences: u = x+y, v = x3 + y3, w = -1/(x+y). Give reasons for your answer.
What does failing total utility for imply marginal utility? Give an arthimetical example to illustrate your answer
Gina is at a toy store and is buying toy T-Rex's (x), which cost pe, and toy yaks (y), which cost py. Her income is I. She likes 3 T-Rex's as much as she likes 4 yaks. These toys are perfect substitutes for her.
Problem 1 Last week, neither Alistair nor Bodana purchased blueberries (x). Both consumers had $30 to spend on blueberries and/or raspberries (y), the price of the two fruits was $3 per pack and both consumers bought raspberries only. Alistair's utility for blueberries and raspberries is UA(x,y) = x+2y. Bodana's utility for blueberries and raspberries is UB(x,y) = x +12ln(y). a) In two separate graphs, illustrate Alistair's and Bodana's optimal choices. Your graphs must illustrate the consumers' budget constraints and their indifference curves at the optimal bundle. b) At their optimal bundle, what is Alistair's marginal rate of substitution of raspberries for blueberries (- MUx/MUy)? At their optimal bundle, what is Bodana's marginal rate of substitution? This week, blueberries cost $3 per pack just like last week, however raspberries now cost $4 per pack. c) How many packs of blueberries and raspberries will Alistair buy this week? Clearly justify your answer. d) Using the…
Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the bolded question below. • Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function: U = 2C + 3P • Huang has $12 to spend on soft drinks. • The price of Coke (P) is $0.50/can. • The price of Pepsi (Pp) is $1.00/can. Which of the following statements referring to Huang's preferences is incorrect. O Huang does NOT experience diminishing MRS. If Huang gives up two cans of Pepsi, he needs to purchase 3 cans of Coke to remain equally satisfied. Pepsi and Coke are perfect substitutes for Huang O None of the above statements are incorrect.
Sylvia’s utility function over waffle fries, F, and frozen yogurt, Y is given by U = 2 ∗ F ∗ Y. Her marginal utility from waffle fries is MUF = 2Y, and her marginal utility from frozen yogurt is MUY= 2F. A pack of frozen waffle fries sells for $4. The price of a cup of frozen yogurt is $6. Sylvia has a budget of $120 to allocate to these items each month. a) For Sylvia’s utility functions above, draw a set of indifference curves showing utility levels U = 20, U = 30, and U = 40 b) What is the equation for Sylvia’s budget line? Draw it (with frozen yogurt –Y– on the vertical axis), and label the slope and intercepts. c) What is Sylvia’s marginal rate of substitution? d) If Sylvia maximizes her utility, how much of each food should she consume? Solve for her optimal bundle. Show how to determine this bundle on a diagram using indifference curves and a budget line. e) Briefly explain if each of the four conditions of the utility-maximizing behavior is satisfied with the bundle you…
Smith and Jones are stranded on a desert island. Each has in her possession some slices of ham (H) and cheese (C). Smith prefers to consume ham and cheese in the fixed proportion of 2 slices of cheese to each slice of ham. Her utility function is given by Us = min(10H, 5C). Jones, on the other hand, regards ham and cheese as substitutes – she is always willing to trade 3 slices of ham for 4 slices of cheese, and her utility function is given by UJ = 4H + 3C. Total endowments are 100 slices of ham and 200 slices of cheese. a. Draw the Edgeworth Box diagram for all possible exchanges in this situation. What is the contract curve for this exchange economy? b. Suppose Smith’s initial endowment is 40 slices of ham and 80 slices of cheese (Jones has the remaining ham and cheese as her initial endowment). What mutually beneficial trades are possible in this economy and what utility levels will Smith and Jones enjoy from such trades? c. Now imagine a new endowment in which Smith has 60 slices…
Need help for questions d),e),f)
Lucas likes lemon soda (X) and chips (Y). His utility function is given by: U (X, Y) = X0.2Y0.8 He earns $40 per week to spend on lemon soda (X) and chips (Y). The prices of lemon soda and chips are $2 and $4 respectively. Find out Lucas’s utility-maximizing bundle of lemon soda and chips (X*, Y*). Set up the utility-maximization problem and find out the price ratio of these two goods. Find out Lucas’s marginal utility of lemon soda (MUX) and marginal utility of chips (MUY). Calculate the MRSXY . Set up the optimal tangency condition and solve for Y in terms of X. Solve for Lucas’s optimal consumption bundle of lemon soda (X*) and chips (Y*). Draw the optimal consumption bundle on the budget constraint BC1 in Q1. Denote it as Bundle A. Make sure to indicate the optimal consumption of lemon soda (X*) and chips (Y*). Draw an indifference curve that is tangent to the budget constraint at Bundle A. Calculate the value of the MRSXY (the value not the formula) at the optimal…
Gino derives utility from only two goods, carrots (Qc) and donuts (Qd). His utility function is as follows:U(Qc,Qd) = (Qc)(Qd)The marginal utility that Donald receives from carrots (MUc) and donuts (MUd) are given as follows:MUc = Qd MUd = QcGino has an income (I) of £120 and the price of carrots (Pc) and donuts (Pd) are both £1. - suppose a lump sum tax of the same dollar amount, of a 1 pound tax per unit on donuts, is levied on Gino. what is Gino's utility maximising market basket? - why would Gino prefer a per unit tax over the lump sum tax, or vice versa, or why is he indifferent between the two taxes.
Fang likes playing badminton with her friends. Her utility function for playing badminton every week is given by U(t) = 11t – 2t2, where t is measured in hours. They play on a badminton court, which they can rent per hour. Suppose the current price to play on the badminton court is £2.50 per hour. How many hours should Fang play if she wishes to maximise her utility? Explain what we mean by the principle of diminishing marginal utility. Does the principle apply in Fang’s case? Explain why. In a diagram with income in pound sterling on the horizontal axis and quantity on the vertical axis, show the relationship between Fang’s budget and the number of hours that would maximise her consumer surplus.
Frank spends $75 on 10 magazines and 25 newspapers. The magazines cost $5 each and the newspapers cost $2.50 each. Suppose that his MU from the final magazine is 10 utils while his MU from the final newspaper is also 10 utils. According to the utility-maximizing rule, Frank should: reallocate spending from newspapers to magazines. none of the other answers are correct. reallocate spending from magazines to newspapers. be satisfied because he is already maximizing his total utility.