Question
2.1Beer and beach visit Peter only enjoys beer and visiting the local beach. His utility function is described by u(x1; %2)= 0.2lnx1 + 0.8lnx2 where
2.1Beer and beach visit Peter only enjoys beer and visiting the local beach. His utility function is described by
u(x1; %2)= 0.2lnx1 + 0.8lnx2
where x1 is the amount of beer and X2 is the number of trips to the beach. A bottle of beer costs $2; a trip to the local beach costs $1. Peter has a budget of $20. Answer the following questions both numerically and graphically.
(a)Please derive Peter's marginal utility for beer and beach visits respectively. What is the marginal rate of substitution? (0.9pts)
(b)Please derive the budget line. (0.6pts)
(c)What is the optimal choice for Peter? (1pts)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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