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Unformatted text preview: b) Set up the Lagrangian and ﬁnd her optimal consumption. c) How does her consumption of cookies change if her income doubles? 1 Question 4 For each of the following expressions, state the formal assumption that is being made about the individual’s utility function: a) Gouda cheese can be used whenever you need Mozzarella cheese and vice versa b) Eggs and bacon taste better together. c) Traﬃc jams are horrible. Question 5 Avon Barksdale enjoys the health beneﬁts of running but ﬁnds it painful. His utility function is u ( r ) = 50 ln( r )-r 2 a) Which part of the utility captures the beneﬁts and which part the costs of running? b) What is Avon’s marginal beneﬁt of running and the marginal cost? c) Solve for Avon’s optimal run. What happens to the optimal r if the 50 is replaced by 100 in the utility function? 2...
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This note was uploaded on 10/18/2010 for the course ECON 11 taught by Professor Cunningham during the Spring '08 term at UCLA.
- Spring '08