Suppose that a consumer can purchase apples for $1, and bananas for $0.50. The consumer wishes to eat two pieces of fruit a day. The consumer is willing to spend $10/week on fruit.

a) Draw the consumerâs budget constraint, showing the different combinations of apples and bananas that can be purchased for $10.

b) If that consumer is you, what combination of fruit would you purchase, and why?

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Trinidad TremblayLv2

24 Aug 2019

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You are a produce grocer who sells two products: apples and bananas (you sell them in bushels, but weâll just consider a bushel to be one unit of fruit). Each costs you $1 per bushel wholesale, which is your only cost. You can prevent resale among your customers, of which there are three, each with unit inelastic demand. Consumer 1 has a willingness to pay of $2 per apple (bushel) and $8 per banana (bushel). For Consumer 2, the willingness to pay is $4 for apples and $6 for bananas. Consumer 3 would pay up to $9 for apples but only $1 for bananas.

A. Suppose you price apples and bananas separately. What is the profit-maximizing price for each?

B. What is the profit-maximizing price if you sell the two fruit as a pure bundle?

C. What leads to higher profits â selling separately or offering a pure bundle? Explain how this answer relates to the correlation in consumersâ willingness to pay across apples and bananas.

D. Can you do better by mixed bundling? Explain why or why not?

E. Does your answer to part (d) change if your production cost is $3 per unit instead?

Suppose that there are two goods (X and Y). The price of X is $2 per unitu, and the price of Y is $1 per unit. There are two consumers ( A and B). The utility functions for the consumers are: for consumer A: U (X,Y)= X^.5Y^.5 and for consumer B: U(X,Y)=X^.8Y^.2

Consumer A has an income of $100, and Consumer B has an income of $300.

1. Derive the marginal utlities of goods X and Y for consumer A

2. Derive the marginal utilities of goods X and Y for consumer B

3. Set consumer A's MRS equal to the price ratio. Then use the budget constraint to solve for her optimal bundle

4. Set consumer B's MRS equal to the price ratio. Then use the budget contraint to solve for his optimal consumption bundle.

5. Calculate the MRS for each consumer at their optimal consumption bundles.

6. Suppose that there is another conusmer (let's call her C). You don't know anything about her utility function or her income. All you know is that she consumes both goods. What do you know about C's MRS at her optimal consumption bundle? Why?

crimsonbat715

1. If there has been a 10% increase in Consumer income between two periods, what was the percentage change in demand for foreign travel? For tobacco products? For flour? (Hint use the income elasticity values in Table 4-4.)

2. Agricultural commodities are known to have a price-inelastic demand and to be necessities. How can this information allow you to explain why the income of farmersfalls (a) after a good harvest? (b) In relation to the incomes in other sectors of the economy?

3. Suppose that the cross-price elasticity of demand between McIntosh and Golden Delicious apples is 0.8, between apple and apple juice is 0.5, between apples and cheese is 0.4, and between apples and beer is 0.1 What can you say about the relationship between each set of commodities?

4. (a) If price of pork increases by 10 percent, by how much does demand for beef change? (b) If price of pork increases by 10 percent, by how much does demand for food change? (hint use the cross-price elasticity values in Table 4-5.)