Question
Pablo's utility function is U(x,y)=x+10y-y^2/2, where x is the number of x's he consumes per week and y is the number of y's he consumes
Pablo's utility function is U(x,y)=x+10y-y^2/2, where x is the number of x's he consumes per week and y is the number of y's he consumes per week. Pablo has $200 a week to spend.
The price of xis $1. The price of y is currently $5 per unit. Pablo has received an invitation to join a club devoted to the consumption of y.
If he joins the club, Pablo can get a discount on the purchase of y.
If he belonged to the club, he could buy y for $1 a unit.
How much is the most Pablo would be willing to pay to join this club?
a.$8
b.$28
c.$36
d.$56
e.None of the above.
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