Assignment 1 2.11 4.10 5.4 5.5 6.12 Solutions

Assignment 1 2.11 4.10 5.4 5.5 6.12 Solutions - NAME 13...

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NAME 13 2.11 (1) Harry Hype has $5,000 to spend on advertising a new kind of dehydrated sushi. Market research shows that the people most likely to buy this new product are recent recipients of M.B.A. degrees and lawyers who own hot tubs. Harry is considering advertising in two publications, a boring business magazine and a trendy consumer publication for people who wish they lived in California. Fact 1: Ads in the boring business magazine cost $500 each and ads in the consumer magazine cost $250 each. Fact 2: Each ad in the business magazine will be read by 1,000 recent M.B.A.’s and 300 lawyers with hot tubs. Fact 3: Each ad in the consumer publication will be read by 300 recent M.B.A.’s and 250 lawyers who own hot tubs. Fact 4: Nobody reads more than one ad, and nobody who reads one magazine reads the other. (a) If Harry spends his entire advertising budget on the business pub- lication, his ad will be read by 10,000 recent M.B.A.’s and by 3,000 lawyers with hot tubs. (b) If he spends his entire advertising budget on the consumer publication, his ad will be read by 6,000 recent M.B.A.’s and by 5,000 lawyers with hot tubs. (c) Suppose he spent half of his advertising budget on each publication. His ad would be read by 8,000 recent M.B.A.’s and by 4,000 lawyers with hot tubs. (d) Draw a “budget line” showing the combinations of number of readings by recent M.B.A.’s and by lawyers with hot tubs that he can obtain if he spends his entire advertising budget. Does this line extend all the way to the axes? No. Sketch, shade in, and label the budget set, which includes all the combinations of MBA’s and lawyers he can reach if he spends no more than his budget.
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14 BUDGET CONSTRAINT (Ch. 2) (e) Let M stand for the number of instances of an ad being read by an M.B.A. and L stand for the number of instances of an ad being read by a lawyer. This budget line is a line segment that lies on the line with equation M +2 L =16 . With a fixed advertising budget, how many readings by M.B.A.’s must he sacrifice to get an additional reading by a lawyer with a hot tub? 2. 04 8 1 2 16 4 8 12 Lawyers x 1000 MBA's x 1000 16 c a b 5 10 Budget Set Budget line 2 3 6
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NAME 43 4.10 (0) Martha Modest has preferences represented by the utility func- tion U ( a, b )= ab/ 100, where a is the number of ounces of animal crackers that she consumes and b is the number of ounces of beans that she con- sumes.
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Assignment 1 2.11 4.10 5.4 5.5 6.12 Solutions - NAME 13...

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