Answered step by step
Verified Expert Solution
Question
00
1 Approved Answer
1. Consider a consumer who consumes three goods, the quantity consumed for good 1, 2 and 3 are 1131, 3:2 and :33 respectively. The utility
1. Consider a consumer who consumes three goods, the quantity consumed for good 1, 2 and 3 are 1131, 3:2 and :33 respectively. The utility function of the 1 1 1 consumer is U = 3:15 + 3325 + 1133?. The price of good 1 is 1, price of good 2 is 1, and price of good 3 is 4. The consumer has income 20. (a) What is the budget constraint for the consumer? (b) What is the quantity of consumption that maximise the utility of the consumer? (c) The markets for good 1 and 2 are now dominated by a single rm - the rm now only sells good 1 and 2 in a bundle that, for each unit of good 1 purchased, the consumer has to purchase two units of good 2. Is the utility maximising quantity that the consumer would have purchased in part (b) available in this new circumstances? Discuss how you could nd the utility maximising quantity of consumption for the consumer, without solving for it explicitly. (d) In light of part (c), what are the economic assumptiou(s) you made in part (a) of the question? Are they reasonable assumption{s) in real life? Discuss why or why not
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started