1) Suppose that Abel and Eden spend their incomes on two goods, food (F) and clothing (C). Abel’s preferences are represented by the utility function U(F,C)=10FC, while Eden’s preferences are represented by the utility function U(F,C)= 0.20F2C2 A) With food on the horizontal axis and clothing on the vertical axis, identify on a graph the set of points that give Abel the same level of utility as the bundle (10, 5). Do the same for Eden on a separate graph. B) On the same two graphs, identify the set of bundles that give Abel and Eden the same level of utility as the bundle (15, 8). C) Do you think Abel and Eden have the same preferences or different preferences? Explain 2. Graphically show the effect of an increase in price of Coca Cola on the demand of Pepsi Cola 3. Assume a budget line is drawn for two commodities: X on the x-axis and Y on the y-axis. If the income of the consumer is 120 Birr, the y-intercept is 3, and the slope of the budget line is -0.5 then determined the price of commodity X. 4. Mezgebu quits his administrative job, which pays 60,000 ETB a year, to finish her four- year college degree. Her annual college expenses are 6,000 ETB for tuition, 700 ETB for books, and 3000 ETB for food. What is her opportunity cost of attending college for the year?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter3: Preferences And Utility

Section: Chapter Questions

Problem 3.15P

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1) Suppose that Abel and Eden spend their incomes on two goods, food (F) and clothing (C).
Abel’s preferences are represented by the utility function U(F,C)=10FC, while Eden’s
preferences are represented by the utility function U(F,C)= 0.20F2C2
A) With food on the horizontal axis and clothing on the vertical axis, identify on a graph the
set of points that give Abel the same level of utility as the bundle (10, 5). Do the same for
Eden on a separate graph.
B) On the same two graphs, identify the set of bundles that give Abel and Eden the same
level of utility as the bundle (15, 8).
C) Do you think Abel and Eden have the same preferences or different preferences? Explain

2. Graphically show the effect of an increase in price of Coca Cola on the demand of Pepsi
Cola

3. Assume a budget line is drawn for two commodities: X on the x-axis and Y on the y-axis. If
the income of the consumer is 120 Birr, the y-intercept is 3, and the slope of the budget line
is -0.5 then determined the price of commodity X.

4. Mezgebu quits his administrative job, which pays 60,000 ETB a year, to finish her four-
year college degree. Her annual college expenses are 6,000 ETB for tuition, 700 ETB for
books, and 3000 ETB for food. What is her opportunity cost of attending college for the
year?

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