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econ11_08_problems2

# econ11_08_problems2 - Eco11 Fall 2008 Simon Board Economics...

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Eco11, Fall 2008 Simon Board Economics 11: Practice Problems 2 (Week 3) 29 September, 2008 1. Consumer choice problem Sam eats breakfast at Luvalle Commons everyday. She likes bagels and coffee and they provide her a utility of U ( b, c ) = b 2 / 3 c 1 / 3 . Bagels cost \$2 and coffee costs \$1 per cup. Her daily budget for breakfast is \$12. a) Suppose that she consumes 2 bagels and 8 coffees. Find the marginal rate of substitution. Is this an optimal choice? Why? b) Suppose that she consumes 3 bagels and 3 coffees. Find the marginal rate of substitution. Is this an optimal choice? Why? c) Find the optimal choice for Sam. 2. Consumer choice problem Joe is a teenager who likes video games G and music M. Each week, he receives \$60 to buy games and music CDs. His utility function for these two goods is U ( G, M ) = G 1 / 2 + M 1 / 2 . The price of a game is \$20 and the price of a CD is \$10. a) Solve for Joe’s demand using the Lagrangian Method. b) Solve the same problem as in (a) using the Substitution Method.

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econ11_08_problems2 - Eco11 Fall 2008 Simon Board Economics...

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