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4808pset5

# 4808pset5 - Economics 4808 Problem Set 5 1 U = x1 x 2 x3...

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Economics 4808 Problem Set 5 1. Assume Wilbur’s utility function is 3 2 1 x x x U = . Further assume that the law dictates that Wilbur consume two units of 2 x for every unit of 1 x . Determine Wilbur’s demand function for good 1. Explain, in words, all the steps in your derivation of his demand function for good 1. Now derive Wilbur’s demand functions for goods 2 and 3. How many units of the three goods will he choose to purchase if his income is \$72.00, p 1 = \$1.00, p 2 = \$0.50 and p 3 = \$7.00. 2. Suppose a legislator applies price regulation on a natural monopoly to garner votes. Votes are a function of producer utility (U R ) and consumer utility (U C ). The legislator’s vote/utility function is V = V(U R , U C ). U R = R, and U C = K – R – L where R and L are shown in the typical monopoly versus competitive market outcome below. \$ P m R L P c MC Q MR D Obviously, both U R and U C are affected by the eventual price (P) set by the legislator because both R and L are affected by that price. a.

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4808pset5 - Economics 4808 Problem Set 5 1 U = x1 x 2 x3...

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