Question
JanedrinksBeer(B)onlywhensheconsumesbagsofChips(C)Janealwaysconsumestwobottlesofbeeralongwithabagofchips.TheyareperfectcomplementsforJane.Priceofabottleofbeeris$2whilethepriceofabagofChipsis$2.Assumeyoucanconsumefractionsordecimalsofeachproduct.Jane'sincomeis$50. A.SetupJane'sutilityfunction.DrawandlabeltwoofJane'sindifferencecurves. B.Calculatethenumberof{B,C}pairJaneconsumesandcorrespondinglevelofutilityforJane,assetupinpartA).Whatistheintuitionbehindthesolution?Drawandlabelthebudgetconstraint,solveforJane'soptimalchoiceandpresentyouranswergraphically. C.SupposethequantitydiscountisimposedonBeer.ThepriceofBeeris$2upto10bottlesofBeer,and$1fromthe10thbottleofBeerandup.Howdoesherchoiceandbudgetconstraintchange?Whathappenstoherutility?(Presentyouranswergraphicallyaswell).
JanedrinksBeer(B)onlywhensheconsumesbagsofChips(C)Janealwaysconsumestwobottlesofbeeralongwithabagofchips.TheyareperfectcomplementsforJane.Priceofabottleofbeeris$2whilethepriceofabagofChipsis$2.Assumeyoucanconsumefractionsordecimalsofeachproduct.Jane'sincomeis$50.
A.SetupJane'sutilityfunction.DrawandlabeltwoofJane'sindifferencecurves.
B.Calculatethenumberof{B,C}pairJaneconsumesandcorrespondinglevelofutilityforJane,assetupinpartA).Whatistheintuitionbehindthesolution?Drawandlabelthebudgetconstraint,solveforJane'soptimalchoiceandpresentyouranswergraphically.
C.SupposethequantitydiscountisimposedonBeer.ThepriceofBeeris$2upto10bottlesofBeer,and$1fromthe10thbottleofBeerandup.Howdoesherchoiceandbudgetconstraintchange?Whathappenstoherutility?(Presentyouranswergraphicallyaswell).
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