The Consumer equilibrium in two commodity case given the prices of goods and his budget. Concept Introduction: Consumers Equilibrium: In order to maximize his utility, the consumer will spend his income in such a way so that the following condition is satisfied: MU from good ' x ' Price of good ' x ' = MU from good ' y ' Price of good ' y '

Question

At the 8:10 café, there are equal numbers of two types of customers with the following values. The café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (that is she cannot price discriminate). Students with early classes Students without early classes Coffee 70 60 Banana 50 100 The MC of coffee is 10. The MC of a banana is 40. Is bundling more profitable than selling separately? HINT: if you sell the bundle, can you make more by offering coffee separately? If so, what price should be charged for the bundle? (Show calculations)

Answer 1

Question

Chapter 6, Problem 5P

To determine

The Consumer equilibrium in two commodity case given the prices of goods and his budget.

Concept Introduction:

Consumers Equilibrium: In order to maximize his utility, the consumer will spend his income in such a way so that the following condition is satisfied:

$\frac{MU from good' x'}{Price of good' x'} = \frac{MU from good' y'}{Price of good' y'}$

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