Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 4, Problem 13PAA
To determine
The consumer’s budget line, when an offer of “buy three, get the fourth for free” is available.
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A penurious graduate student has a food budget of $100.00/week. To survive with sufficient energy to attend classes, he knows that he needs to consume 50 protein units per week. The only two foods he can stand to eat on a regular basis are beans and hamburger. He derives twice as ich pleasure per protein unit from eating hamburger as he does from beans. a. Assume that hamburger costs $3.00 per protein unit and beans cost $1.00 per protein unit. Formulate the student's diet problem as a linear program. (You can assume he wants to maximize his "total utility" from his diet and that he gets I utile from each protein unit of beans he consumes and 2 utiles from each pro- tein unit of hamburger.) What is the optimal consumption of beans and ham- burger in this case? b. Plot the student's price-response curve for beans as the price of beans goes from $0.01 to $2.00, assuming that everything else (including the price of hamburger) stays constant. Note that his individual price-response…
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Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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- Calculate marginal utility and marginal utilty per dollar for the data provided in the table below: (round to two decimal places) The Price of wine is 3 The Price of Cheese is 0.14 The Consumer's budget for wine and Cheese is 9.69 (CHEESE) (CHEESE) (CHEESE) WEDGES OF CHEESE GLASSES (WINE) (WINE) (WINE) MARGINAL UTILITY MARGINAL MARGINAL UTILITY MARGINAL UTIUTY/dollar OF WINE TOTAL UTILITY TOTAL UTILITY UTIUTY/dollar 70 Number Number Number Number 160 35 Number 65 Number 225 3. 41 Number Number Number Number 45 288 Number 61 Number 48 349 The Quantity of Wine this consumer would buy to maximize utlity is: Number Number The Quantity of Cheese this consumer would buy to maximize utilit is : What is the consumer's Total Utility when optimized: Number 10arrow_forwardSuppose John decides to buy 4 units of food and 4 units of clothing with his $12 budget. Would his marginal utility per dollar spent on food be greater than or less than his marginal utility per dollar spent on clothing? What does this tell you about how he should substitute food for clothing if he wanted to increase his utility without spending any more money?arrow_forwardIf this consumer has $11.00 to spend on cans of beer and slices of pizza in any given week, then would consuming a combination of 6 beers and 8 pizzas maximize the consumer's utility? If not, what would the consumer have to do to maximize their utility from consumption of these two goods?arrow_forward
- Using the consumer choice theory, explain how an individual decides how to adjust her preferred combination of different products to buy when the price of just one product changes ?arrow_forwardWhat are the limitations of the law of Equi- marginal utilityarrow_forwardSuppose that with a budget of $210, Fatima spends $126 on sushi and $84 on bagels when sushi costs $2 per piece and bagels cost $2 per bagel. Then, after the price of bagels falls to $1 per bagel. Instructions: Enter your answers as a whole number. How many pieces of sushi and how many bagels did Fatima consume before the price change? pieces of sushi and bagels At the new prices, how much money would it have cost Fatima to buy those same quantities (that is, the quantities that she consumed before the price change)? Given that it used to take Fatima's entire $210 to buy those quantities, how big is the income effect caused by the lower price of bagels?arrow_forward
- Douglas allocates his budget of $24 per week to 3 goods, cereal, books and clothing. Use the table below to answer the following question Quantity Total Utility of Cereal Total Utility of Books Total Utility of Clothing 1 50 75 25 2 90 135 45 3 120 175 60 4 140 205 70 5 155 225 78 1. If the price of cereal is $2, the price of books is $3 and the price of clothing is $1, at what point does Douglas maximize his utility? Explain.arrow_forwardDouglas allocates his budget of $24 per week to 3 goods, cereal, books and clothing. Use the table below to answer the following question Quantity Total Utility of Cereal Total Utility of Books TotalUtility of Clothing 1 50 75 25 2 90 135 45 3 120 175 60 4 140 205 70 5 155 225 78 If the price of cereal is $2, the price of books is $3 and the price of clothing is $1, at what point does Douglas maximize his utility?arrow_forwardDescribe Marginal Utility and Diminishing Marginal Utility? Include a detailed example using a table.arrow_forward
- The table below shows Martha’s total utility from burgers and pasta. Suppose that the price of a burger is $4, the price of pasta is $8 a dish, and Martha has $24 a week to spend. Quantity of Burger per week Total utility for Burger MU MU/P Quantity of Dishes Pasta per week Total utility for Pasta MU MU/P 0 0 0 0 1 10 1 20 2 18 2 36 3 25 3 48 4 31 4 56 5 36 5 60 6 40 6 62 a- Conclude whether or not we follow the law of diminishing MU. b- What is optimal combination of Burger and Pasta?arrow_forwardEvaluate your marginal and total utility of consuming at an all you can eat pizza buffet. Explain when you could determine when you should stop consuming using the concept of marginal analysisarrow_forwardWhich of the following choices best explains how marginal utility causes the average person to eat more food at a buffet than at an a la carte menu where you pay for each item that you want? A. Spending money on food has a very low marginal utility, so customers at a la carte restaurants will generally only buy the cheapest options (which taste worse), causing them to eat less. B. A consumer will eat until the next serving's benefit is less than its cost. At an a la carte restaurant, a consumer will stop ordering even when the marginal utility of the next serving is positive. At an all-you- can-eat buffet, the next serving always costs zero. Therefore, a consumer won't stop until the next bite provides negative marginal utility. C. People go to buffets because they want to eat more. Thus, the customers at buffets are more inclined to eat more food. Marginal utility does not play a factor in how much they eat. incorrect D. Because consumers choose their own portion sizes at a buffet,…arrow_forward
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