Reference no: EM133240986
1) Lisa has an income of $100. She spends all of her income on pizza and burritos. A pizza costs $10 and a burrito costs $5. However, the store where Lisa buys her burritos has a special deal. After you've bought 6 burritos, then you can buy each burrito for $2.50. Draw Lisa's budget set.
2) Lisa consumes only pizzas and burritos. In equilibrium (at the optimal consumption bundle), her marginal utility of pizza is 20 and her marginal utility of a burrito is 10. The price of a pizza is $4. What is the price of a burrito?
3) Mary spends all of her income on goods X and Y. She has a monthly income of $6000, and the prices of the goods are PX = 30 and PY = 10. Draw the budget constraint, calculate Mary's optimal consumption bundle, and show it on your graph, when:
a. Mary's utility function is U(X,Y) = XY
b. Mary's utility function is U(X,Y) = X2Y
c. Mary's utility function is U(X,Y) = XY4
[Hint: can you calculate the optimal consumption bundle for a consumer with generic Cobb-Douglas preferences, U(X,Y) = XY?]
4) Mary spends all of her income on goods X and Y. She has a monthly income of $6000, and the prices of the goods are PX = 30 and PY = 10. Draw the budget constraint, and calculate Mary's optimal consumption bundle when
a. Mary's utility function is U(X,Y) = 4X+Y
b. Mary's utility function is U(X,Y) = min(X,2Y) [Hint: what type of preferences are represented by this utility function? Draw the indifference curves]
5) Bob has convex indifference curves and has a monthly income equal to $1000, and pays $1 for every text message he sends. Under these conditions, Bob sends 200 text messages per month, and uses the rest of his income to purchase an aggregate consumption good, Y, whose price is PY=1.
a. Draw Bob's budget constraint and his optimal consumption bundle on a graph with the number of text messages on the horizontal axis and the amount of Y on the vertical axis.
b. The cell phone company offers a new plan: Bob can pay a flat monthly fee of $180, and the price per text message will fall to $0.10. Which plan does Bob prefer, the original plan or the new one?