Loise spends £20 on tea (T) and coffee (C). Her preferences for these goods can be described by the following utility function: U(T, C) = 2T + C² − C (MU₁ = 2, MUc = 2C − 1). Suppose that one cup of tea costs £1.60 while one cup of Loise's favourite coffee costs £4.00. a) Find Loise's optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning. b) Discuss how Loise's optimal consumption choice would change when her disposable budget changes. c) If the price of tea increases to £2.00 per cup, how should the price of coffee change so that Loise can be as well off as before this change in prices? d) Discuss the implications of the price change from c) on Loise's optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Loise's demand for tea and/or coffee.

Loise spends £20 on tea (T) and coffee (C). Her preferences for these goods can be described by the following utility function: U(T, C) = 2T + C² − C (MU₁ = 2, MUc = 2C − 1). Suppose that one cup of tea costs £1.60 while one cup of Loise's favourite coffee costs £4.00. a) Find Loise's optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning. b) Discuss how Loise's optimal consumption choice would change when her disposable budget changes. c) If the price of tea increases to £2.00 per cup, how should the price of coffee change so that Loise can be as well off as before this change in prices? d) Discuss the implications of the price change from c) on Loise's optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Loise's demand for tea and/or coffee.

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter6: Consumer Choice And Demand

Section: Chapter Questions

Problem 2QFR

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Loise spends £20 on tea (T) and coffee (C). Her preferences for these goods can be described by the following utility function: U(T, C) = 2T+C²-C (MUT=2, MUC = 2C-1). Suppose that one cup of tea costs £1.60 while one cup of Loise's favourite coffee costs £4.00. a) Find Loise's optimal consumption bundle. Provide both algebraic and graphical solution. Explain your reasoning. b) Discuss how Loise's optimal consumption choice would change when her disposable budget changes. c) If the price of tea increases to £2.00 per cup, how should the price of coffee change so that Loise can be as well off as before this change in prices? d) Discuss the implications of the price change from c) on Loise's optimal choice. In your discussion, include the analysis of the substitution and income effects as well as Loise's demand for tea and/or coffee.
PLEASE HELP ME ANSWER IT AS FAST AS YOU CAN Dalal consumes only two goods for lunch and dinner: risotto (R) and lamb machboos (M). Dalal’s utility function isgiven by U(R,M) = R + 4M. Suppose that a risotto dish costs 3 KD and that a dish of lamb machboos costs 6 KD.Dalal has 300 KD a month to spend on her lunch and dinner meals. d. What would Dalal’s optimal basket be given that her utility will equal the level found in part (c)? e. How much would the basket found in part (d) cost? f. How much cash does Jassem need to offer to fulfill his promise?Although both of Jassem’s offers will make Dalal just as happy, their costs will not be the same. g. What is the cheaper option for Jassem: offering a 60 KD risotto gift card or offering the amount of cash foundin part (f) part c solution, available utility is R+4M = 20+200 = 220 utils.
PLEASE HELP ME ANSWER IT AS FAST AS YOU CAN Dalal consumes only two goods for lunch and dinner: risotto (R) and lamb machboos (M). Dalal’s utility function isgiven by U(R,M) = R + 4M. Suppose that a risotto dish costs 3 KD and that a dish of lamb machboos costs 6 KD.Dalal has 300 KD a month to spend on her lunch and dinner meals. a. How many risotto and lamb machboos dishes will Dalal buy each month if she maximizes utility?Dalal’s brother, Jassem, wants to make her happier and is considering two options: giving her a 60 KD gift card that can only be spent on risotto from one of the Italian restaurants or giving her some cash money.If Jassem chooses to give Dalal the 60 KD risotto gift card:b. How many risotto meals can Dalal add to her optimal basket? c. What utility level will Dalal get given her income and the risotto gift card?Suppose that Jassem instead chooses the second option and promises Dalal to raise her income to the level thatensures making her as happy as the first…
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8. Pele enjoys coffee (C) and tea (T) according to the function Replace 'Pele' with Alana U(C, T) = 3C + 4T(a) What does her utility function say about her MRS of coffee and tea?(b) Suppose the price of coffee (PC) and the price of tea (PT) are both $3. If Alana has $12 to spend on these products,i. How much coffee and tea should she buy to maximize her utility? ii. Draw a carefully labeled graph of her indifference curve map and her budget constraint. Put the quantities of coffee on the horizontal axis. Be sure to identify the utility maximizing point.(c) Would Alana buy more coffee if she had more income? Explain. (d) Suppose the price of coffee fell to $2. How would her consumption change?
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Suppose that U(f,c) = f + 8c^(1/2)is a utility function that describes Amelia’s preferences over two goods: fish(f)and custard (c). For the following, think of fish as the good graphed on the horizontal axis.a. Derive an expression for her marginal utility (Uf)from a small increase in f holding c fixed. Also find themarginal utility for custard (Uc).b. What is Amelia’s marginal rate of substitution (MRS)? Give a brief (2 sentences maximum) intuitivedescription of what MRS represents. If Amelia has 4 units of custard, holding her utility constant, howmany units of custard would she be willing to give up in order to get one more unit of fish?c. Graph Amelia’s indifference curve for a utility level of 40. Be sure to specify at least 3 bundles of goodson the indifference curve.d. Does the fact that Amelia’s indifference curve intersects with the custard axis violate any of the 5properties of indifference curves? Briefly support your answer.e. Give another utility function that represents…
The utility function for Morris is U = min {AM, T}, where M is pints of milk and T is cans of tuna. Morris has S90 to spend or tuna (prices at $2 per can) and milk (priced at $1 per pint). What is Morris's utility-maximizing consumption bundle? 1)M = 40 and T= 25 2)M= 15 and T= 65 3)M= 10 and T= 40 4)M= 30 and T= 30
Carla has utility function U(x, y) = vx + 2y over goods x and y a) Do we have a name for this type of utility function? Are Carla's preferences well-behaved? b) Let Carla have budget I=$40, and let prices be Px=$2, Py=$8. What bundle will Carla consume? c) What if Carla's budget drops to $20? [Think about: could this utility function describe Carla's preferences over bread and ice cream?]
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