Homework_2______Intermediate_Microeconomics__Solution

# Homework_2______Intermediate_Microeconomics__Solution -...

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Homework 2 Intermediate Microeconomics Solution 1. On Monday the price of a slice of pizza is \$2 and a medium coke is \$1. At these prices Jane spends her \$30 of lunch money to purchase 11 slices of pizza and 8 cokes for her kids. On Friday the prices of pizza and coke are reversed so the price of a slice is \$1 and the price of a coke is \$2. At these prices Jane uses here \$30 to purchase 10 slices and 10 cokes. Assuming that her (and her kids’) preferences have not changed between Monday and Friday then are her choices consistent with Jane having rational preferences (as defined in class)? Briefly explain your answer. 2. Sheila enjoys both magazines (x) and movies (y) and her preferences over these two goods can be represented by the utility function U(x,y) = y + 3 ln x where x represents the number of magazines and y represents the number of movie tickets. a) Given Sheila’s preferences find her demand functions for magazines (x) and movie tickets (y).

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b) Suppose that the price of a movie ticket is \$10 and that Sheila has \$60 to spend on magazines and movies. Write Sheila’s demand curve for magazines. Illustrate her demand curve in a diagram. c) Suppose that the price of a magazine is \$3 (and the price of a movie is 10 and her income is 60). Use your demand functions to find her best bundle. In the indifference curve diagram illustrate her best bundle at these prices. d) Suppose that the price of a movie ticket rises to \$12 (and the price of magazine remains \$3 and her income is still \$60). Use your demand functions to find her new best bundle. What is her new demand curve for magazines? Illustrate the new budget line and the new best bundle in your diagram for part (c).
3. Bruce’s preferences over margarine (x) and butter (y) can be represented by the following utility function: U(x,y) = 2 ln x + 3 l n y where both margarine and butter are measured in pounds. a) If the price of margarine is P

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## This note was uploaded on 02/10/2010 for the course IEOR 3600 taught by Professor Chudnovsky during the Winter '09 term at Columbia.

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Homework_2______Intermediate_Microeconomics__Solution -...

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