Find the optimal choice for each of the following individuals given that each has an income of $210 that they can spend on coffee (good x) and bagels (good y). The prices of each are Px-$2 and Py=$1. Use a graph to illustrate each case a) Adam's utility is U= 3x+2y. How will his consumption point change if Py=$2 b) Joshua's utility is U=min (3x,2y). What is his utility when he consumes the optimal choice? 12 c) Rachel's utility is U=24√x + 3y and MUx=and MUy-3. How does her optimal consumption change when her income increases to 490? Do you notice anything?

Find the optimal choice for each of the following individuals given that each has an income of $210 that they can spend on coffee (good x) and bagels (good y). The prices of each are Px-$2 and Py=$1. Use a graph to illustrate each case a) Adam's utility is U= 3x+2y. How will his consumption point change if Py=$2 b) Joshua's utility is U=min (3x,2y). What is his utility when he consumes the optimal choice? 12 c) Rachel's utility is U=24√x + 3y and MUx=and MUy-3. How does her optimal consumption change when her income increases to 490? Do you notice anything?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

a,b,c

L
Practice sheet: The optimal choice
Find the optimal choice for each of the following individuals given that each has an income of $210 that
they can spend on coffee (good x) and bagels (good y). The prices of each are Px-$2 and Py=$1. Use a
graph to illustrate each case
a) Adam's utility is U= 3x+2y. How will his consumption point change if Py=$2
b) Joshua's utility is U=min (3x,2y). What is his utility when he consumes the optimal choice?
c) Rachel's utility is U=24√√x + 3y and MUx=-
| MUx=and MUy-3. How does her optimal consumption
change when her income increases to 490? Do you notice anything?
d) Charlie's utility is U=x0.75 0.25, MUX-0.75 x 0.250.25 and MUy= 0.25 x0.75 y
what we call homothetic preferences. What does that mean? What can you say about his
budget shares of each good?
,-0.75. Charlie has

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