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Unformatted text preview: ity‐maximizing bundle in Jane’s budget set? 3. Consider a consumer who derives utility from consuming DVD’s and video games. Each month, the consumer has an amount, I, to spend on DVDs and video games. Each DVD sells for PD. Each video game sells for PV. The consumer’s utility function is U(d, v) = d(v1/2), which means that his marginal utility functions are: MUd = v1/2 and MUv = (1/2)dv‐12. a. Derive the consumer’s demand function for DVDs (i.e ‐ the utility‐maximizing quantity of DVDs demanded, d*, as a function of it’s exogenous determinants: I, PD, and PV). Hint: with this utility function, d* won’t depend on Pv. b. Graph the consumer’s demand curve for DVD’s (PD plotted against d*) when I = $300. Redraw the demand curve for the case when I = $400. c. Graph the consumer’s Engel curve for DVD’s (I plotted against d*) when PD = $20/unit. Redraw the Engel curve for the case when PD = $10/unit. d. If I = $300, PD = $20/unit and PV = $40/unit, what bundle of DVD’s and video games will the consumer...
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This document was uploaded on 02/17/2014.

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