Donna and Jim are two consumers purchasing strawberries and chocolate. Jim’s utility function is ?(?,?) = ?? and Donna’s utility function is ?(?,?) = ?2? where x is strawberries and y is chocolate. Jim’s marginal utility functions are MUx=y and MUy=x while Donna’s are MUx=2xy and MUy=x2. Jim’s income is $100, andDonna’s income is $150.What is the optimal bundle for Donna if the price of strawberries is $2 and the price of chocolate is $4?

Question
Asked Mar 20, 2019
1 views

Donna and Jim are two consumers purchasing strawberries and chocolate. Jim’s utility function is ?(?,?) = ?? and Donna’s utility function is ?(?,?) = ?2? where is strawberries and is chocolate. Jim’s marginal utility functions are MUx=y and MUy=x while Donna’s are MUx=2xy and MUy=x2Jim’s income is $100, andDonna’s income is $150.

    • What is the optimal bundle for Donna if the price of strawberries is $2 and the price of chocolate is $4?
check_circle

Expert Answer

Step 1

To get optimal bundle, one has to equate slope of indiffernce curve to slope of budget line.

 

 

fullscreen
Step 2

Income = Px . X + Py . Y 

150 = 2 X + 4 Y   or

75 = X + 2 Y

This is the budget line equation.

we can substitute X = 4Y in budget line equation to o...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Economics

Consumer demand theory

Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: We often work with production technologies that give rise to initially increasing marginal product o...

A: Production technology:True, because the slope of the production frontier is equal to the marginal pr...

question_answer

Q: Having trouble deriving the elasticity of demand for this problem:Consider two demand functions: a) ...

A: Click to see the answer

question_answer

Q: the Fed began implementing QE3 in September 2012 and ended it in October 2014. The Fed argued that Q...

A: After the 2008 great recession, the US economy faced a credit crunch which has to be removed from th...

question_answer

Q: If the economy is in an inflationary gap, the Federal Reserve should conduct ______ monetary policy ...

A: Aggregate Demand (AD) is the aggregate of all demands for goods and services by all economic units i...

question_answer

Q: Кееp production $200 million $300 million Using what you know about the prisoner's dilemma, what wou...

A: The aforemention game belongs to the prisioner’s dilemma where each player (Antel and IMD) both show...

question_answer

Q: What are some examples of activities that would create positive and negative externalities? And how...

A: The term externality refers to any economic or non-economic cost imposed on or benefit provided to a...

question_answer

Q: Solow Growth Model    Why are these the right answers? See image.

A: From the questions, part a, this working is a short term phenomena and the increase in K will push t...

question_answer

Q: What is an isoprofit line? What is a factor demand curve?

A: The iso-profit line indicates the same amount of profit that produces by different combinations. In ...

question_answer

Q: Suppose the demand function for widgets is Q(p) = 60 – p, and all firms that produce widgets have to...

A: We are given the demand function for widgets as Q(p) = 60 – pAnd, the cost function is given as C(q)...