Unformatted text preview: Problem4 l f (95% 1 4—0 Brenda likes hot dogs and CocwCola. Hot Mend Cakes cost $0.50 er
bottle. There is a special promotion for Coke that will last for one month. If Brenda
sends in the bottle tops from the Cokes she drinks during the next month, she will get. a
refund of $0.20 for every bottlecap beyond the ﬁrst 12 that she returns. For example, if
she returns 25 bottle caps she will get back $2.60 = $02005 — 1'2); Brenda has $40 to
spend on hot dogs and Coke during the next Wt line with Coke on
the horizontal axis and hot dogs on the vertical axis. Find the points Where the budget
has hits the axes and the point Where it has a kink. At each of these three points write down the quantities of each good consumed. Problem 5 Belinda loves chocolate and always thinks that more is better than less. Belinda thinks
that a. few piano lessons would be worse than none at all, but if she had enough piano
lessons to get good at playing the piano, she would prefer more lessons to less. Draw a
graph with piano lessons on the horizontal axis and chocolate on the vertical axis. On
your graph sketch two indifference curves for Belinda that would be consistent with this
story. Label the better of the taro indifference curves ALA and the worse one BB. Problem 6 Victor Finick likes to have the same amount of a: as he has of 3;. His utility function is
U{:r. y} : min{2.7; ~— y.2y — 3:}. 1. Draw the indifference curve for Victor that passes through the bundle {0.0) and
the indifference curve that passes through ('4, 4). (Hint: Each indifference curve is
the intersection of two line segments.) If Victor has a. bundle that he likes better than (0, 0) and his consumption of both
goods is doubled7 is Victor better off? to 3. Does Victor always prefer more of either good to less? Problem 7
Max has the utility function Ute, y} z My + 1). The price of :r is $2 and the price of
y is $1. Income is $10. How much :5 does Max demand? How much y? If his income
doubles and prices stay unchanged. will Max‘s demand for both goods double? L cc 1: ‘ ~
.. ifs. WW
{ﬂat} 21H ”4% 5? Xi};
W0 ” a) “2*
My: 15w“) 4; c I :2_ lg)
gig/.1070 1;] Li ...
View
Full Document
 Fall '10
 IOANADAN

Click to edit the document details