ARE 100A
Quiz on Problem Set III
January 29 2010
Name……………………………..
Section……………………………..
1.
A consumer spends his income only on bread.
He consumes two brands of bread, Safeway (S) and
Nugget (N).
Units consumed are measured by N and S.
The consumer’s utility function is given by:
U(N,S)=
5 ln N +
2.5 ln S.
N
P
is given as $4 and
is given as $2.
The income of the consumer is given as $48.
S
P
(a)
Find the equilibrium that maximizes the consumer’s utility in the problem above.
Obtain the
quantities and utility level.
(b)
If the price of N decreases from $4 to $3, what will the new equilibrium quantities be ?

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