Question
Mickey is considering buying a tape recorder. His utility function is, where x is the amount of money he spends on other goods, y is
Mickey is considering buying a tape recorder. His utility function is, where x is the amount of money he spends on other goods,yis the number of tape recorders he buys, andzis the number of tapes he buys. Letf(y)=0 ify<1 andf(y)=8 ifyis greater than or equal to 1. The price of tape recorders is $20, the price of tapes is $1, and Mickey can easily afford to buy a tape recorder and several tapes. Will he buy a tape recorder?
a.He is indifferent to buying a tape recorder or not.
b.He should buy a tape recorder at these prices, but if tapes were any more expensive, it would not pay to buy one.
c.There is not enough information here for us to be able to tell.
d.He should not buy a tape recorder.
e.Even if the price of tapes doubled, he should still buy a tape recorder.
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