# PS2 - Microeconomics-Spring 2008 Problem Set 2 1 Consider a...

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Microeconomics-Spring 2008 Problem Set 2 1. Consider a high school student, Freddy, whose preferences for entertainment activities- watching movies (m) and playing squash (s) - are represented by the utility function 3 / 1 3 / 2 ) , ( s m s m U = Freddy’s allocated monthly budget for entertainment is \$120 and the prices of the two goods he cares about are given by \$20 for movies and \$10 for squash. a. Write down Freddy’s utility maximization problem. b . Calculate Freddy’s MRS (of m for s ). How do you interpret this number at (m=2, s=4), (m=3, s= 5), and at (m=4, S=2)? c . If Freddy plays 6 squash games and goes to 3 movies per month, is this an optimal consumption choice for him? (Hint; think in terms of the condition under which utility is maximized) d If Freddy's preferences changed due to a change of taste influenced by his friend Tom, and now faces the following utility function; s m U + = ln . Tom's utility function, however, was s m U + = 3 . Calculate Freddy's new MRS, in addition to Tommy's MRS.

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## This note was uploaded on 02/15/2011 for the course ECON 101 taught by Professor Womer during the Spring '08 term at NYU.

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PS2 - Microeconomics-Spring 2008 Problem Set 2 1 Consider a...

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