Consider an individual who consumes two goods, x and y. Her utility function is U(x, y) = x¹/³y²/³ The prices of the goods are p = Py = 1. She has a gift certificate worth $40 and an income of I= $50. (i) (Unrestricted) Suppose the gift certificate is unrestricted so it can be spent on either r or y or both. What is her optimal bundle? (ii) (Restricted) Now find her utility-maximizing bundle if the gift certificate is restricted to be spent on only good x. [Think carefully. Take into account what she spends on x in (a), unrestricted case] Now consider only the restricted case (i.c., certificate can only be spent on good x). (iii) Someone offers to buy the gift certificate. Let $M be the minimum amount of money the individual will accept to sell it. What is M? (You may round off your answer to 2 decimal places)
Consider an individual who consumes two goods, x and y. Her utility function is U(x, y) = x¹/³y²/³ The prices of the goods are p = Py = 1. She has a gift certificate worth $40 and an income of I= $50. (i) (Unrestricted) Suppose the gift certificate is unrestricted so it can be spent on either r or y or both. What is her optimal bundle? (ii) (Restricted) Now find her utility-maximizing bundle if the gift certificate is restricted to be spent on only good x. [Think carefully. Take into account what she spends on x in (a), unrestricted case] Now consider only the restricted case (i.c., certificate can only be spent on good x). (iii) Someone offers to buy the gift certificate. Let $M be the minimum amount of money the individual will accept to sell it. What is M? (You may round off your answer to 2 decimal places)
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter21: The Theory Of Consumer Choice
Section: Chapter Questions
Problem 1PA
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Only part (iii) please, thank you!
![1. Consider an individual who consumes two goods, x and y. Her utility function is
U(x, y) = x¹/³y²/³
The prices of the goods are pr = Py = 1. She has a gift certificate worth $40 and an
income of I = $50.
(i) (Unrestricted) Suppose the gift certificate is unrestricted so it can be spent on
either r or y or both. What is her optimal bundle?
(ii) (Restricted) Now find her utility-maximizing bundle if the gift certificate is
restricted to be spent on only good x. [Think carefully. Take into account what
she spends on x in (a), unrestricted case]
Now consider only the restricted case (i.c., certificate can only be spent on good x).
(iii) Someone offers to buy the gift certificate. Let $M be the minimum amount of
money the individual will accept to sell it. What is M? (You may round off your
answer to 2 decimal places)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc3585354-64d7-4f4a-b055-4a9b75b3799d%2F288d6800-1254-490a-82b4-6d7f4869c03a%2Fzi6a9su_processed.png&w=3840&q=75)
Transcribed Image Text:1. Consider an individual who consumes two goods, x and y. Her utility function is
U(x, y) = x¹/³y²/³
The prices of the goods are pr = Py = 1. She has a gift certificate worth $40 and an
income of I = $50.
(i) (Unrestricted) Suppose the gift certificate is unrestricted so it can be spent on
either r or y or both. What is her optimal bundle?
(ii) (Restricted) Now find her utility-maximizing bundle if the gift certificate is
restricted to be spent on only good x. [Think carefully. Take into account what
she spends on x in (a), unrestricted case]
Now consider only the restricted case (i.c., certificate can only be spent on good x).
(iii) Someone offers to buy the gift certificate. Let $M be the minimum amount of
money the individual will accept to sell it. What is M? (You may round off your
answer to 2 decimal places)
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