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.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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:
\[
MU_M = 0.5M^{-\frac{1}{2}} B^{\frac{1}{2}}
\]
- Rhea's marginal utility function for bread:
\[
MU_B = 0.5M^{\frac{1}{2}} B^{-\frac{1}{2}}
\]
- Rhea has $60 to spend on bread and milk.
- The price of milk (P_m) is $3/gallon of milk.
- The price of bread (P_b) 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.
- ○ For each gallon of milk, Rhea will buy 3 loaves of bread.
- ○ For each gallon of milk, Rhea will buy 1 loaf of bread.
- ○ For each gallon of milk, Rhea will buy 6 loaves of bread.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F314f0635-1dd9-4d26-9205-7f03c7b2e19c%2Fa17986e8-a702-435a-90f9-0be769deb3b8%2Fqird0kre_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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:
\[
MU_M = 0.5M^{-\frac{1}{2}} B^{\frac{1}{2}}
\]
- Rhea's marginal utility function for bread:
\[
MU_B = 0.5M^{\frac{1}{2}} B^{-\frac{1}{2}}
\]
- Rhea has $60 to spend on bread and milk.
- The price of milk (P_m) is $3/gallon of milk.
- The price of bread (P_b) 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.
- ○ For each gallon of milk, Rhea will buy 3 loaves of bread.
- ○ For each gallon of milk, Rhea will buy 1 loaf of bread.
- ○ For each gallon of milk, Rhea will buy 6 loaves of bread.
Expert Solution
Step 1
Utility refers to the satisfaction attained by the consumers from the consuming the goods and services for which they pay the prices and spend their income. The aim of the rational consumer is to maximize the utility.
Marginal utility is the additional utility attianed from consuming one additional unit of the good. For most of the goods consumers experience marginal diminishing utility that is, with each additional consumption, the additional utility attained from it decreases.
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