Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 4WNG
To determine
Identify the maximization of utility.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose you go to Trader Joe's to buy fruit for the week. You only like apples (A) and bananas
(B) and your weekly fruit budget is $11. When you arrive at Trader Joe's you notice that the
price of an apple is $1.00 and the price of a banana is $0.25.
QUESTION #1: How many apples and bananas should you buy?
QUESTION #2: When you have found the answer, draw a diagram that shows the outcome.
Step #1. Determine your preferences. Let's suppose that your preferences can be represented
by the following utility function: U(A, B) = AªBß = A0.40 B0.60
FYI: This utility function is known as a Cobb-Douglas utility function. It is the most commonly used function used in
economics! The reason we like it so much is that it has:
1. Constant returns (double your consumption of A and B and your utility doubles); a + B = 1
2. Diminishing marginal utility (the extra utility gained from consuming A (or B) decreases as you consume more of
the A good (or B good); a 0.40); B > a.
Step #2: Determine your…
Suppose you go to Trader Joe's to buy fruit for the week. You only like apples (A) and bananas
(B) and your weekly fruit budget is $11. When you arrive at Trader Joe's you notice that the
price of an apple is $1.00 and the price of a banana is $0.25.
QUESTION #1: How many apples and bananas should you buy?
QUESTION #2: When you have found the answer, draw a diagram that shows the outcome.
Step #1. Determine your preferences. Let's suppose that your preferences can be represented
by the following utility function: U(A, B) = AªBB = A0.40 B0.60
FYI: This utility function is known as a Cobb-Douglas utility function. It is the most commonly used function used in
economics! The reason we like it so much is that it has:
1. Constant returns (double your consumption of A and B and your utility doubles); a + B = 1
2. Diminishing marginal utility (the extra utility gained from consuming A (or B) decreases as you consume more of
the A good (or B good); a 0.40); B > a.
Step #2: Determine your…
Imagine a pizza, with a question: How does each slice of pizza you consume impact your utility for the next?
Chapter 20 Solutions
Economics (MindTap Course List)
Ch. 20.1 - Prob. 1STCh. 20.1 - Prob. 2STCh. 20.1 - Prob. 3STCh. 20.2 - Prob. 1STCh. 20.2 - Prob. 2STCh. 20.3 - Prob. 1STCh. 20.3 - Prob. 2STCh. 20 - Prob. 1QPCh. 20 - Prob. 2QPCh. 20 - Prob. 3QP
Ch. 20 - Prob. 4QPCh. 20 - Prob. 5QPCh. 20 - Prob. 6QPCh. 20 - Prob. 7QPCh. 20 - Prob. 8QPCh. 20 - Prob. 9QPCh. 20 - Prob. 10QPCh. 20 - Prob. 11QPCh. 20 - Prob. 12QPCh. 20 - Prob. 13QPCh. 20 - Prob. 14QPCh. 20 - Prob. 15QPCh. 20 - Prob. 16QPCh. 20 - Prob. 1WNGCh. 20 - Prob. 2WNGCh. 20 - Prob. 3WNGCh. 20 - Prob. 4WNGCh. 20 - Prob. 5WNGCh. 20 - Prob. 6WNGCh. 20 - Prob. 7WNG
Knowledge Booster
Similar questions
- How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double?arrow_forwardUsing a budget line, why does a decrease in the price of a good allow one to potentially consume more of both goods?arrow_forwardSuppose you have $12 to buy apples or oranges. The price of both apples and oranges is $2, and the marginal utility of buying apples or oranges is shown in the following table: a. In equilibrium, how many apples and oranges would you buy? b. Please speculate and draw the demand curve for apples or oranges (Note: the demand curve depicts the function of price and quantity demanded).arrow_forward
- The budget set, or budget constraint, in the graph shows the possible combinations of brownies and ice cream cones that can be purchased. Assume that this person has a total of $18 to spend on brownies and ice cream cones. How much does a brownie cost? $ Assume that at point A, the marginal utility from a brownie is 10 and the marginal utility for an ice cream cone is 18. This person is utility maximizing. should consume more brownies and fewer ice cream cones. should consume more ice cream cones and fewer brownies. Brownies 18- 16- 14- 12- 10- 8- 6- 4 2. 0 1 2 3 1 A 1 + 4 5 Budget constraint 6 7 8 9 10 11 12 13 14 Ice cream conesarrow_forwardDo you think the model of consumer equilibrium describes how people really make the decisions on what to order to in a restaurant to maximize their utility? Is there a better model to measure consumer choice?arrow_forwardQuestion 2arrow_forward
- Using the consumer choice theory, explain how an individual decides what combination of different products to buy?arrow_forwardComplete each of the following sentences: Your tastes determine the _____________ you derive from consuming a particular good. _______________ utility is the change in ________________ utility resulting from a _______________ change in the consumption of a good. As long as the marginal utility is positive, total utility is ____________________________. The law of diminishing marginal utility states that as an individual consumes more of a good during a given time period, other things constant, total utility ________________________.arrow_forwardInfo in imagesarrow_forward
- Info in imagesarrow_forwardAll goods have diminishing marginal utility, but for some goods (or activities), marginal utility falls quickly as you consume more, while for others, marginal utility falls slowly. Can you think of examples of goods that you continue to enjoy a great deal as your consumption increases? Can you think of goods for which your marginal utility decreases rapidly?arrow_forwardSuppose utility can be measured by "utils" and that Jim buys both coffee and bagels. The price of coffee is $2 and the price of a bagel is $3. If Jim is currently consuming coffee and bagels such that the marginal utility from the last cup of coffee consumed was 6 utils and the marginal utility from the last bagel consumed was 12 utils, is Jim maximizing utility? Why or why not? If not, what should Jim do? Explain in detail.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc