Exam 1_Solutions

# Exam 1_Solutions - College of Human Ecology Cornell...

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MC 3) Suppose Alice considers cream cheese and bagels to be perfect complements . Her utility function is given by U ( B , C ) = min { 2 B , C } , where B is the number of bagels and C is the packets of cream cheese she consumes. If the price of cream cheese is P C = \$1 per packet oz cream cheese and price of bagels is P B = \$3 per pagel, then ( a ) She will not purchase any bagels. ( b ) She will not purchase any cream cheese. ( c ) She will spend one third of her budget on bagels and two-thirds on cream cheese. ( d ) She will buy two packets of cream cheese for every bagel she buys. Answer : 3d . Her utility function indicates that, regardless of her budget set, her choices must satisfy C = 2 B . MC 4) Bob considers coffee and tea to be perfect substitutes and likes coffee twice as much as tea. His utility function is given by U ( C , T ) = 2 C + T where C and T denote his daily coffee and tea consumption in ﬂ oz, respectively. Suppose only the following bundles are available to Bob: Bundle K: (15,15) Bundle L: (1, 30) Bundle M: (18,0) Bundle N: (0, 34) Which one of these bundles will he choose? ( a ) Bundle K ( b ) Bundle L ( c ) Bundle M ( d ) Bundle N Answer : 4a . U ( 15 , 15 ) = 45 , U ( 1 , 30 ) = 32 , U ( 18 , 0 ) = 36 and U ( 0 , 34 ) = 34 . The following graph shows a consumer who considers food and shelter to be perfect com- plements. One of his indifference curves and the budget line he faces are depicted in the ﬁgure. Use the graph to answer questions 5 7 .
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Exam 1_Solutions - College of Human Ecology Cornell...

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