REC 2 - ECO303.02 Recitation 2 1) The price elasticity of...

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ECO303.02 Recitation 2 1) The price elasticity of gasoline supply in the U.S. is 0.4. If the price of gasoline rises by 8%, what is the expected change in the quantity of gasoline supplied in the U.S.? A) +3.2% B) -3.2% C) +32.0% D) +0.32% Answer: A 2) Jane lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her utility function is U = 3SC (where S is the number of soft drinks per week and C the number of bags of chips per week), so her marginal utility of S is 3C and her marginal utility of C is 3S. Soft drinks are priced at $0.50 each, chips $0.25 per bag. a. Write an expression for Jane's marginal rate of substitution between soft drinks and chips. b. Use the expression generated in part (a) to determine Jane's optimal mix of soft drinks and chips. c. If Jane has $5.00 per week to spend on chips and soft drinks, how many of each should she purchase per week? Answer:
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This note was uploaded on 12/14/2010 for the course ECO 303 taught by Professor Yunshanchan during the Fall '08 term at SUNY Stony Brook.

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REC 2 - ECO303.02 Recitation 2 1) The price elasticity of...

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