Question
Ben spends $100 per month on playing video games (G) at an arcade or going to movies (M). His utility function is U(G,M)=2ln(G)+M The price
Ben spends $100 per month on playing video games (G) at an arcade or going to movies (M). His utility function is U(G,M)=2ln(G)+M The price of G is $1 and the price of M is $10. Answer the following questions: Ben would like to choose the consumption of G and M so that he maximizes his utility. How many G and M would Ben like to consume? Label the x-axis as G for quantities of G and y-axis as M for quantities of M. Compute his maximum level of satisfaction. Draw the following in the same graph: i. an indifference curve that represents Ben's preferences, ii. his budget line and iii. his optimal consumption bundle. Derive Ben's demand function for M. Is M a normal good? What happens to the demand of M as price of M increases and income is held constant?
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To maximize Bens utility we need to solve the following optimization problem Maximize UG M 2lnG M Su...Get Instant Access to Expert-Tailored Solutions
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Macroeconomics Principles Applications And Tools
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
7th Edition
978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234
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