a) You are given a utility function described as: U= U(K, L, M) = 10LogK + SLogL. + 2LogM Where K, L and M are goods consumed. The individual has K100 to spend on the three items. Furthermore, you are informed that monthly salary is $500 and the prices of K, L and M are $2, $10 and $4 respectively. Calculate the consumer's optimal bundle.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 17SQ

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Concept explainers

Form Utility

The term utility in general refers to the satisfaction earned from usage of a particular product or service. Utility always plays an important role because it influences various important elements like demand & thereby the price of the good or service as well. Though utility is not easy to measure, various types of economic models can be used indirectly. There can be various types of utilities like economic utility, marginal utility, cardinal utility, form utility.

Question

a) You are given a utility function described as:
U= U(K, L, M) = 10LogK + SLogL. + 2LogM
Where K, L and M are goods consumed. The individual has K100 to spend on the three
items. Furthermore, you are informed that monthly salary is $500 and the prices of K, L
and M are $2, $10 and $4 respectively. Calculate the consumer's optimal bundle.
D.
b) Provided a demand curve for Beans is as follows
O = 4000 - 255P
Where Q is the quantity demanded and P is the price. Find the elasticity at K7, K10 and K15.

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Given:

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Marginal Utility (MU)

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Marginal Utility per unit price

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Budget Constraint

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Substituting values of K,L and M in Budget constraint:

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BUDGET CONSTRAINT:

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