Consider a student, Nick, who must decide how to optimallyallocate his weekly food budget. For each meal he can choose togo to the dining hall or to order take-out from his favoriterestaurant. Nick's utility function over dining hall meals (D) andrestaurant meals (R) is:u(D, R) = DR+ 20RSuppose that Nick's weekly food budget is $120 and the price of adining hall meal is $5.00.For his restaurant meals, Nick has two options:Option A: He can pay $10.00 per restaurant meal orOption B: He can become a member of a frequent buyer clubat his favorite restaurant. If he joins the club, he must pay a$24.00 per-week access fee and then he only has to pay $8.00a meal.Round all decimals to 2 places when necessary.Under option A, Nick's utility maximizing basket is D =D and R =D.Under option B, Nick's utility maximizing basket is D = and RNick should join the frequent buyer club because it increases his utility.O TrueO False

The above question is the problem of utility maximization subject to budget constraint so that an…

Under option A, Nick's utility maximizing basket is D and R =U- Under option B, Nick's utility maximizing basket is D =| and R Nick should join the frequent buyer club because it increases his utility. O True False

Under option A, Nick's utility maximizing basket is D and R =U- Under option B, Nick's utility maximizing basket is D =| and R Nick should join the frequent buyer club because it increases his utility. O True False

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

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Consider a student, Nick, who must decide how to optimally
allocate his weekly food budget. For each meal he can choose to
go to the dining hall or to order take-out from his favorite
restaurant. Nick's utility function over dining hall meals (D) and
restaurant meals (R) is:
u(D, R) = DR+ 20R
Suppose that Nick's weekly food budget is $120 and the price of a
dining hall meal is $5.00.
For his restaurant meals, Nick has two options:
Option A: He can pay $10.00 per restaurant meal or
Option B: He can become a member of a frequent buyer club
at his favorite restaurant. If he joins the club, he must pay a
$24.00 per-week access fee and then he only has to pay $8.00
a meal.
Round all decimals to 2 places when necessary.
Under option A, Nick's utility maximizing basket is D =D and R =D.
Under option B, Nick's utility maximizing basket is D = and R
Nick should join the frequent buyer club because it increases his utility.
O True
O False

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