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Unformatted text preview: Economics 11, Winter 2010; HW Assignment #02 Due Thursday Jan 21, 3:15PM in Lecture 1. Samantha receives an allowance of $120/month specifically to buy video games G and Music Downloads M . (She has other income for other purchases. She is not allowed to spend any of this allowance on any other goods or to save any of it.) Samanthas utility function for games and Music Downloads is U ( G,M ) = G 1 / 2 M 1 / 2 Games cost $20 each and Music Downloads cost $1 each. (a) Write an equation for Samanthas budget constraint and make a diagram showing her budget set and her budget line. (b) Use the substitution method to find Samanthas optimal choice. (c) Use the marginal utility per dollar method to find Samanthas optimal choice. (d) Use the Lagrangian method to to find Samanthas optimal choice. 2. Samanthas twin sister Tabitha also receives an allowance of $120/month specifically to buy video games (with the same conditions as Saman tha). Tabithas utility function for games and Music Downloads is V ( G,M ) = log G + 2 log M Games cost $20 each and Music Downloads cost $1 each....
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 Winter '09
 McDevitt

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