Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use the information in italics to answer the bolded question below: • Rhea's marginal utility function for milk: MUM Rhea's marginal utility function for bread: = 0.5M-B MUB=0.5MB Rhea has $60 to spend on bread and milk. • The price of milk (Pm) is $3/gallon of milk. • The price of bread (Pb) is $1/loaf of bread. . For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk is the vertical axis good (i.e., good Y). When you set up the optimal budget decision rule for Rhea's consumer problem, which of the following statements best describes how much she will buy of both goods at her consumer equilibrium? For each gallon of milk, Rhea will buy 1/3 loaf of bread. O For each gallon of milk, Rhea will buy 3 loaves of bread. For each gallon of milk, Rhea will buy 1 loaf of bread. O For each gallon of milk, Rhea will buy 6 loaves of bread.

Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use the information in italics to answer the bolded question below: • Rhea's marginal utility function for milk: MUM Rhea's marginal utility function for bread: = 0.5M-B MUB=0.5MB Rhea has $60 to spend on bread and milk. • The price of milk (Pm) is $3/gallon of milk. • The price of bread (Pb) is $1/loaf of bread. . For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk is the vertical axis good (i.e., good Y). When you set up the optimal budget decision rule for Rhea's consumer problem, which of the following statements best describes how much she will buy of both goods at her consumer equilibrium? For each gallon of milk, Rhea will buy 1/3 loaf of bread. O For each gallon of milk, Rhea will buy 3 loaves of bread. For each gallon of milk, Rhea will buy 1 loaf of bread. O For each gallon of milk, Rhea will buy 6 loaves of bread.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter21: Demand: Consumer Choic

Section: Chapter Questions

Problem 1E

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Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use the information in italics to answer the bolded question below: • Rhea's marginal utility function for milk: MUM = Rhea's marginal utility function for bread: MUB = 0.5M- / B ²/² 0.5M = B-1/2 В • Rhea has $60 to spend on bread and milk. • The price of milk (Pm) is $3/gallon of milk. • The price of bread (Pb) is $1/loaf of bread. • For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk is the vertical axis good (i.e., good Y). Which of the following algebraic expressions represents Rhea's marginal rate of substitution along her indifference curves? MRS = √M √B MRS = 0.5 MRS = 1 M B 1 MRS=0.5B2 M2 M B
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: • 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. Without considering prices, what type of soft drink does Huang prefer. Huang always prefers Coke U = 2C + 3P Huang always prefers Pepsi Huang is indifferent between both Pepsi and Coke Huang's preference depends on how many cans he has purchased of either soft drink.
Suppose Carlos has to choose between purchasing jewelry and water. Which of the following is the utility-maximizing rule that Carlos should follow while choosing the optimal quantities of these two goods? (Note: In the answer options that follow, MU stands for "marginal utility.") O (MU of Water) x (Price of Water) = (MU of Jewelry) x (Price of Jewelry) O MU of Water = MU of Jewelry MU of Jewelry %3D Price of Water MU of Water Price of Jewelry MU of Jewelry Price of Jewelry MU of Water %3D Price of Water Since water costs little and jewelry is expensive, it must follow that when people choose their optimal quantities of water and jewelry to purchase, the marginal utility they receive from the last piece of jewelry they buy is than the marginal utility they receive from the last gallon of water they buy.
Reid has the following utility function. U = 24m1/3d1/2 where U is Reid's total utility, m is the quantity of muffin consumed, and d is the quantity of doughnuts consumed. Reid has a budget of $25.00, the price of a muffin is $1.00 and the price of doughnut is $0.60. a. What is the equation for the marginal utility Reid receives from muffins? What is the equation for the marginal utility Reid receives from doughnuts? b. What is the equation for the marginal rate of substitution, MRSm,d? Is Reid's utility function subject to the law of the diminishing marginal rate of substitution? c. Reid has a $15.00 gift card that can only be used to buy doughnuts and $10.00 cash to spend on either of the two goods. The price of a doughnut is $0.60 and the price of a muffin is $1.00. Using equations, determine, determine Reid's optimal combination of muffins and doughnuts given the cash and gift card.
You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the following table. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (a table showing prices and quantities demanded) for X.
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You are choosing between two goods, X and Y, and your marginal utility from each is as shown in the table below. If your income is $9 and the prices of X and Y are $2 and $1, respectively, what quantities of each will you purchase to maximize utility? What total utility will you realize? Assume that, other things remaining unchanged, the price of X falls to $1. What quantities of X and Y will you now purchase? Using the two prices and quantities for X, derive a demand schedule (price–quantity-demanded table) for X.
Define Utility in your own words.What does it mean to have diminishing marginal utility?How do you calculate Marginal Utility? What is the formula?What is the utility maximizing rule? Describe the rule as well as state it mathematically.
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You consume music (M) and concert tickets (C). Your utility function is U(M, C) = M1/4C3/4. The marginal utility for concert tickets, MUC is MUC =3/4C-1/2M1/4 and the marginal utility for music, MUM is MUm = 1/4C3/4M-3/4 (a) Calculate MRSMC using only the given marginal utilities. (b) Solve for the utility of bundle A where M = 16 and C = 16. Solve for your utility at bundle B where M = 128 and C = 8. Are the utilities the same? (c) Calculate MRSMC at bundle A and at bundle B. Are they the same? (d) Are your indifference curves convex? Draw the ICs. Make sure to label the quantities of the consumption bundles, the axis, and the MRS at those bundles.