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Louis has strictly convex preferences with MRS=-2y/3x. He is considering buying the bundle (8,4) which will exhaust all of his income. We also know that Px=2 and Py=1.

a. should he buy this bundle or not? If so, why? if not, explain why not and how he should alter his bundle (example: buy more X, less Y, or buy more Y and less X)

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Namita kumari
Namita kumariLv6
28 Sep 2019

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Related questions

Antonio has strictly convex preferences. He is considering buying a bundle A with positive amounts of good X and good Y. Bundle A costs all of his income and the prices are Px=1 and Py=2. At bundle A his MRS=-3/4.

a. If you were to offer advice to Antonio would you tell him to buy more x and sell back some y or buy more y and sell back more x or to do nothing since he is already maximizing his utility. Explain.

(a) Check for 'regularity conditions'€ to see if the standard tangency method is applicable: test whether preferences are differentiable, insatiable, and strictly convex.

(b) If you found in (a) that all three conditions are met, find the optimal affordable bundle.

(c) If you found in (a) that at least condition fails, clearly state which one and (roughly) sketch some indifference curves to demonstrate what the issue is. Note that for any given problem, you will do either (b) or (c), never both. For this problem set, do not try to find the optimal bundle when the standard method does not apply.

1. u(x, y, z) = 3 ln(x) + 2 ln(y 2 ) + 12z, px = 10, py = 5, pz = 2, m = 100.

2. u(x, y) = 8x - 3x^ 2 + 15y - 2y ^2 - 7000, px = 6, py = 20, m = 5.

Cero has utility U = -{(x -50)^2+ (y -40)^2}, Px = Py = 1 and M = 100.

a.If he receives an additional 10 income how does he spend it? Just on x, just on y or some on x and some on y or on neither? Ted has utility U = 5x^2+ 8y^3 Px = 1 Py = 2 a.At what income is Ted indifferent between buying only x or only y?

b.If income were above the level found in part a, which good would he buy exclusively?

c.If income were below the level found in part a, which good would he buy exclusively?

d.Would the same answers for parts a, b, c hold true if utility were U = 10x^2+ 16y^3and why or why not?

Josh has utility U= -min{4x, 5y} Px=7 Py=10 M=140

a.What is the highest utility he can get?

b.What is his optimal point?

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