PROBLEM (4) You have the Cobb-Douglas utility function u(x, y) = xy over apples (x) and plums (y) and you have $120 budget to spend and can carry at most 480 ounces in weight in your backpack going back to the dorm. Each apple costs $1 and weighs 8 ounces, and each plum costs $3 and weighs 4 ounces. You can only leave the store with a bundle of fruits you can afford and carry. (a) Drawing the relevant lines, intercepts, marking the points and hence identifying the feasible set of bundles, calculate the optimal bundle. (b) Forget about (a). If you were to choose a backpack before going on this shopping trip, for the weight constraint not to be an issue for you, how many ounces of weight capacity would you need for your backpack? HINT: That is, for this weight capacity of the backpack, you'd be able to carry the best bundle you can afford, i.e, the weight constraint is not binding for your decision. (c) Forget about (b). In (a), just before going out for shopping with your backpack to buy the bundle you have calculated in (a), you realize that you can take Uber (cars have no carrying capacity constraint, you can carry any weight of groceries you want). At most how much would you be willing to pay for Uber?

PROBLEM (4) You have the Cobb-Douglas utility function u(x, y) = xy over apples (x) and plums (y) and you have $120 budget to spend and can carry at most 480 ounces in weight in your backpack going back to the dorm. Each apple costs $1 and weighs 8 ounces, and each plum costs $3 and weighs 4 ounces. You can only leave the store with a bundle of fruits you can afford and carry. (a) Drawing the relevant lines, intercepts, marking the points and hence identifying the feasible set of bundles, calculate the optimal bundle. (b) Forget about (a). If you were to choose a backpack before going on this shopping trip, for the weight constraint not to be an issue for you, how many ounces of weight capacity would you need for your backpack? HINT: That is, for this weight capacity of the backpack, you'd be able to carry the best bundle you can afford, i.e, the weight constraint is not binding for your decision. (c) Forget about (b). In (a), just before going out for shopping with your backpack to buy the bundle you have calculated in (a), you realize that you can take Uber (cars have no carrying capacity constraint, you can carry any weight of groceries you want). At most how much would you be willing to pay for Uber?

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

You have an income of $100,000. You can buy an electric car (which costs $60,000) or an internal- combustion car (which costs $30,000). The electric car has a lower mileage than an internal-combustion car: it costs you $1/km if you drive an electric car, but it costs you $2/km if you drive an internal- combustion car. You enjoy driving (measured in kilometers driven) and spending on other goods ( measured in dollars). Draw your budget line (in a diagram measuring all other goods on the vertical axis) if you buy an electric car. What is its slope and what is the economic meaning of its value?
Every month, a family of three spends $2,000 on food (F) and other items (O). The family’s preferences are represented by the utility function U(F,O) = F1/5O4/5. The unit price of food and the unit price of other items are both $1. Find this family’s monthly food expenditure.The family could join a consumers’ club. At the club, food costs 20% less than in other stores (i.e., at the food club PF = $0.8)
Two friends, Minrui and Jing, share a flat and both consume internet (i) and all other goods (g). The utility function for Minrui is U_m=i^(0.3)g^(0.7) whereas the utility function for Jing is U_m=i^(0.1)g^(0.9). Considering that the income of both individuals are the same $500 and that the prices are p_i = $80 and p_g = $5, what would be the optimal allocation of public good (i) and private good (g)? Interpret your answer.
Suppose you had a budget of $20.00 and the prices of a burger and a slice of pizza are $5.00 and $2.00 respectively. What would be your optimal consumption bundle?
Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis) a) Devise a utility function to represent these preferences. b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the budget constraint. c) Solve Tony’s utility maximization problem and find the optimal combination. d) Suppose that a bottle of vodka cost has increased to $50. What will be his new optimal combination.
Two students go out to lunch and decide to split the bill evenly between them. Each student has a quasi-linear utility function given by ui(fi , xi) = φi(fi) + xi , where φi(·) is strictly concave, fi is the amount of food consumed by student i, and xi is a composite numeraire good. Each student has a fixed budget of mi . EVALUATE THIS CLAIM: Both students eat too much!
1. Sam is going to Baltimore for the day to watch his favorite baseball team (Orioles). Sam loves his Orioles, but he is addicted to drinking beer (B) and eating hotdogs (D) while watching his team. His utility function is: U = (B*D)1/2 a. Suppose Sam has $50 to spend on beer and hotdogs. Beer costs $5 a mug and a hotdog costs $4. Draw Sam's budget constraint. b. Suppose Sam spends all of his income on beer. How many mugs of beer can he buy? What is his utility? c. Will Sam's income allow him to reach a U = 5? d. If Sam buys 4 hotdogs, how many mugs of bear can he buy? What is his utility? e. What is the combination of beer and hotdogs that yield the highest utility? 2. Firm A's Price $20 $15 $20 $40 profit $35 profit Firm B's Price $37 profit $39 profit $15 $49 profit $38 profit $30 profit $35 profit a. Firms A and B are member of an oligopoly. Which solution will Firm A and B select? b. Is there a Nash equilibrium? If so, what is it? c. Which solution will Firm A and B select if Firm…
You currently have (x, y) = (8, 2) and the utility function U(x, y) = min(x, 4y ). How many units of X are you willing to give up to get another unit of Y?
Please answer carefully and explain in as much detail as possible.
4. Two individuals, Amir and Budi, consume two goods, clothes (X) and shoes (Y). The utility functions for the two individuals are given as: Utility function of Amir, UA = 15X0.25Y0.75Utility function of Budi, UB = 25X0.5Y0.5 The current price for clothes (Px) is Rp 100,000 and the current price for shoes (PY) is Rp 150,000 a. Determine marginal rate of substitution (MRSXY)between clothes (X) and shoes (Y) for Amir and Budi! Please explain. b. Amir is currently consuming 5 units of clothes (X) and 10 units of shoes (Y), whereas Budi is consuming 12 units of clothes (X) and 8 units of shoes (Y). At this current consumption, have Amir and Budi reached the efficient allocation of clothes and shoes? If they have, explain why. If they have not, calculate the optimal allocation and explain. c. Considering the relative price between of clothes and shoes, at the current consumption, have Amir and Budi reached exchange equilibrium? Please explain d. Use the Edgeworth Box to illustrate the…
Alex, who was convinced that "Football is coming home", was very excited for the World Cup last year. Unfortunately, he realized that his favourite Paul Gascoigne jersey from Euro 1996 was getting old, so he wanted to buy a new one before England's first game the following week. He could either buy a 2014 James Milner shirt from retailer A, which would make him totally happy (utility=1), or a 2006 David Beckham shirt from retailer B, which gives him a utility of 0.8. However, the shirts are not available today. There is a 50% chance that retailer A will have the shirt on the week-end, and 70% chance that retailer B will have theirs on the week-end. Due to time and work constraints, Alex can only visit one of these retailers before the tournament starts, otherwise he will have to keep his old 1996 shirt, which gives him a utility of 0.5. He can also ask his friend Nathan to check both places in the morning. But being a Welsh supporter, Nathan will not do it for free and wants some money…
If you had a vacation budget of $3000 to take vacation(s) this fall, use utility analysis theory to predict which vacation that you would participate in this fall. You need to explain why you would take this vacation instead of another one that you were considering. Assume that you must take the vacation or all life on Earth would perish. I made that last assumption to prevent you from saying that you would just spend it to pay down bills or put it in savings. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.