Question
(4 points) (a) Suppose we have preferences U(X, Y) = min [2X, Y]. Graph/sketch the indifference curve through the bundle X = 10 and Y
(4 points) (a) Suppose we have preferences U(X, Y) = min [2X, Y]. Graph/sketch the indifference curve through the bundle X = 10 and Y = 10. What is the utility at (10, 10)? Explain why the indifference curve looks the way it does. (3 points) (b) What do we mean by a composite good? What does this composite good look like with these preferences? Show and explain. (1 points) (c) Let Px = $10, Py = $20 and income M = $600. State the consumer's maximization problem and express this in words. (4 points) (d) Find optimal X, Y, and the resulting Utility. Explain how you get the optimum and show/sketch in a figure. (4 points) (e) Now suppose we offered a discount so that good Y was priced at $5 for the first 10 units but rises to $10 for any quantity above that. Draw the new budget line. (4 points) (f) Find the optimal X, Y and the resulting Utility given the availability of the discount. Compare to the non-discounted case and discuss why it is different/the same.
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