Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A consumer consumes pizza and soda always in the fixed proportion of 3 slices of pizza (x) with 2 cups of soda (y). Any pizza

A consumer consumes pizza and soda always in the fixed proportion of 3 slices of pizza (x) with 2 cups of soda (y). Any pizza or soda not consumed together with the proportional amount of the other is useless to her.

(a) Write down a utility function u(x,y) that represents her preferences.

(b) If she has I = $60 budget and px = 4, py = 4, what is her optimal bundle?

(c) In (b), If the price of soda increases to $6, how much money should she be compensated so that she achieves the same level of utility before the price increase?

(d) Returning to (b), If the price of soda increases to $6, how much should the price of pizza be reduced so that she achieves the same level of utility before the price hike?

(e) In (a), what values of a and b she is indifferent between the bundle "30 slices of pizza and a cups of soda" and the bundle "b slices of pizza and 40 cups of soda". Find at least two (a,b) pairs to get full points.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Management Accounting Information for Decision-Making and Strategy Execution

Authors: Anthony A. Atkinson, Robert S. Kaplan, Ella Mae Matsumura, S. Mark Young

6th Edition

137024975, 978-0137024971

Students also viewed these Economics questions