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# tutorial_3ans - ECOS2001 Suggested Answers for Tutorial 3...

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ECOS2001 Tutorial 3 1 ECOS2001 Suggested Answers for Tutorial 3 1. Mary’s utility function is ( ) 2 U b,c =b+100c-c , where b is the number of silver bells in her garden and c is the number of cockle shells. She has 500 square feet in her garden to allocate between silver bells and cockle shells. Silver bells each take up 1 square foot and cockle shells each take up 4 square feet. She gets both kinds of seeds for free. (1) To maximize her utility, given the size of her garden, how many silver bells should she plant? How many cockle shells should she plant? Utility Function: () 2 U b,c =b+100c-c Budget Line: 1*b+4*c=500 Marginal Utility of a Silver Bell: SB MU 1 = Marginal Utility of a Cockle Shell: CS MU =100-2c SB CS MU 1 MRS= - =- MU 100-2c 1 slope=- 4 11 -= - 100-2c 4 c*=48 Substitute c*=48 into the budget line and then solve for b; b*=308 ( ) ( ) b*,c* = 308,48 (2) If she suddenly acquires an extra 100 squares feet for her garden, how much should she increase her planting of silver bells? How much should she increase her planting of cockle shells?

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ECOS2001 Tutorial 3 2
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## tutorial_3ans - ECOS2001 Suggested Answers for Tutorial 3...

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