Chapter 5

# Chapter 5 - Chapter 5 Answers to Problems 1. We would...

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Chapter 5 Answers to Problems 1. We would expect patrons of the gourmet restaurant to have higher incomes, on average, than patrons of the diner because willingness to pay for food quality is likely to be an increasing function of income. Since willingness to pay for service is also likely to be an increasing function of income, we expect better service in the gourmet restaurant. Since diners tend to leave tips of about 15 percent of the prices of their meals, gourmet restaurant patrons do, in fact, pay for, and receive, higher service quality. 3. Martha is currently receiving dollar per utils 300 . oz per 25 . 0 \$ . oz per utils 75 = from her last dollar spent on orange juice. She is receiving dollar per utils 250 . oz per 20 . 0 \$ . oz per utils 50 = from her last dollar spent on coffee. Since the two are not equal, she is not maximizing her utility and should spend more on orange juice and less on coffee. 5.

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## This note was uploaded on 04/19/2011 for the course ECON 312 taught by Professor Brown during the Spring '11 term at Atlantic PR.

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Chapter 5 - Chapter 5 Answers to Problems 1. We would...

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