Answered step by step
Verified Expert Solution
Question
1 Approved Answer
ser University Oct. 21 V#B 2. (Total: 14 points) Suppose your instructor (Josh) has decided he needs a new wardrobe and now that he has
ser University Oct. 21" V#B 2. (Total: 14 points) Suppose your instructor (Josh) has decided he needs a new wardrobe and now that he has some money he wants entirely bespoke outfits (i.e. outfits designed and tailored for him). Suppose Josh's income is Y = $50,000 and Josh's utility over the clothing is given as: U(q, n) = 10 x q+30 x n where q is the quality of each outfit and n is the total number of outfits. As there is an issue finding someone to produce the quantity of clothing at the quality desired, let P = $200 be the price of either 1 outfit or an increase of quality by 1 with cost increasing as the square sum. Furthermore, Josh is fortunate to have a wife that agrees to provide him with food and shelter despite spending all of his money on clothes. In other words, Josh believes his budget constraint is $50, 000 = $200 x (q2 + n2) (a) (4 points) How many outfits will Josh purchase? What is the quality of the outfits? (b) (3 points) Suppose we have a budget constraint of $50, 000 = $200 x (q x n). Given Josh's utility function, would Josh be able to maximize his utility? Explain.(c) (7 points) In Figure 1 provide a sketch of the optimal choice, indifference curve, and budget constraint based on part (a). Show a sketch of the budget constraint from part (b) as a dashed line. Be sure to label all axes, lines, and important points. Would Josh ever throw all his money away on quality without every actually purchasing any quantity of the clothing? Explain why to why not with reference to your graph
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started