Ch6

Question 1 Johnny is back - still consuming burgers and steaks. His utility function is U(xB,xs)=xBxS. We want to find his demand function for burgers, xB(pB,pS,m), and his demand function for steaks, xS(pB,pS,m). As we saw in previous chapters, when the prices are pB and pS and Johnny's income is m, the equation for his budget is pBxB+pSxS=m. The slope of Johnny's indifference curve at the bundle (xB,xS) is MUSMUB=xBxS and the slope of his budget line is pSpB. The tangency equation is then pSpB=xBxS a) Using this equation and the budget equation, solve for his demand function for burgers and his demand function for steaks. b) Johnny always spends the same fraction of his income on burgers. What fraction is this? Question 1 Johnny is back - still consuming burgers and steaks. His utility function is U(xB,xs)=xBxS. We want to find his demand function for burgers, xB(pB,pS,m), and his demand function for steaks, xS(pB,pS,m). As we saw in previous chapters, when the prices are pB and pS and Johnny's income is m, the equation for his budget is pBxB+pSxS=m. The slope of Johnny's indifference curve at the bundle (xB,xS) is MUSMUB=xBxS and the slope of his budget line is pSpB. The tangency equation is then pSpB=xBxS a) Using this equation and the budget equation, solve for his demand function for burgers and his demand function for steaks. b) Johnny always spends the same fraction of his income on burgers. What fraction is this