Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.

Jose allocates all of his monthly income of $1500 to the purchase of good X and good Y, and he has strictly convex preferences. He has the option of purchasing the goods from either Aldi or Costco, i.e., he cannot shop from both. At Aldi, there are no membership fees, and he can purchase good X at a price of $12 per unit and good Y at a price of $20 per unit. At Costco, he must pay a monthly membership fee of $200. However, the price of good X is lower by 10% at Costco and price of good Y is lower by 20% at Costco relative to Aldi. Given this information, please answer the following questions: (i) On the same diagram, illustrate and compare Jose's budget constraint if he shops at Aldi with that if he shops at Costco. Explain your work. (ii) Reproduce your diagram from part (i). On this diagram, position Jose's optimal bundle if he shops at Aldi and his optimal bundle if he shops at Costco assuming that he is better off by shopping at Aldi. Explain your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.11P

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