PROBLEM (3) A consumer has preferences on Amazon original shows (x), and the composite good (y) described as u(x,y) = x'y (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?
PROBLEM (3) A consumer has preferences on Amazon original shows (x), and the composite good (y) described as u(x,y) = x'y (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?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Parts b, c and d please
Transcribed Image Text:PROBLEM (3) A consumer has preferences on Amazon original shows (x), and the composite good (y)
described as u(x,y) = x'y (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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