1. Sam is going to Baltimore for the day to watch his favorite baseball team (Orioles). Sam loves his Orioles, but he is addicted to drinking beer (B) and eating hotdogs (D) while watching his team. His utility function is: U = (B*D)1/2 a. Suppose Sam has $50 to spend on beer and hotdogs. Beer costs $5 a mug and a hotdog costs $4. Draw Sam's budget constraint. b. Suppose Sam spends all of his income on beer. How many mugs of beer can he buy? What is his utility? c. Will Sam's income allow him to reach a U = 5? d. If Sam buys 4 hotdogs, how many mugs of bear can he buy? What is his utility? e. What is the combination of beer and hotdogs that yield the highest utility? 2. Firm A's Price $20 $15 $20 $40 profit $35 profit Firm B's Price $37 profit $39 profit $15 $49 profit $38 profit $30 profit $35 profit a. Firms A and B are member of an oligopoly. Which solution will Firm A and B select? b. Is there a Nash equilibrium? If so, what is it? c. Which solution will Firm A and B select if Firm A moves first and Firm B moves second? d. Which solution will Firm A and B select if Firm B moves first and Firm A moves second?

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
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Chapter1: Making Economics Decisions
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1. Sam is going to Baltimore for the day to watch his
favorite baseball team (Orioles). Sam loves his Orioles,
but he is addicted to drinking beer (B) and eating
hotdogs (D) while watching his team. His utility function
is:
U = (B*D)1/2
a. Suppose Sam has $50 to spend on beer and
hotdogs. Beer costs $5 a mug and a hotdog costs $4.
Draw Sam's budget constraint.
b. Suppose Sam spends all of his income on beer. How
many mugs of beer can he buy? What is his utility?
c. Will Sam's income allow him to reach a U = 5?
d. If Sam buys 4 hotdogs, how many mugs of bear can
he buy? What is his utility?
e. What is the combination of beer and hotdogs that
yield the highest utility?
2. Firm A's Price
$20 $15
$20 $40 profit $35 profit
Firm B's Price $37 profit $39 profit
$15 $49 profit $38 profit
$30 profit $35 profit
a. Firms A and B are member of an oligopoly. Which
solution will Firm A and B select?
b. Is there a Nash equilibrium? If so, what is it?
c. Which solution will Firm A and B select if Firm A
moves first and Firm B moves second?
d. Which solution will Firm A and B select if Firm B
moves first and Firm A moves second?
Transcribed Image Text:1. Sam is going to Baltimore for the day to watch his favorite baseball team (Orioles). Sam loves his Orioles, but he is addicted to drinking beer (B) and eating hotdogs (D) while watching his team. His utility function is: U = (B*D)1/2 a. Suppose Sam has $50 to spend on beer and hotdogs. Beer costs $5 a mug and a hotdog costs $4. Draw Sam's budget constraint. b. Suppose Sam spends all of his income on beer. How many mugs of beer can he buy? What is his utility? c. Will Sam's income allow him to reach a U = 5? d. If Sam buys 4 hotdogs, how many mugs of bear can he buy? What is his utility? e. What is the combination of beer and hotdogs that yield the highest utility? 2. Firm A's Price $20 $15 $20 $40 profit $35 profit Firm B's Price $37 profit $39 profit $15 $49 profit $38 profit $30 profit $35 profit a. Firms A and B are member of an oligopoly. Which solution will Firm A and B select? b. Is there a Nash equilibrium? If so, what is it? c. Which solution will Firm A and B select if Firm A moves first and Firm B moves second? d. Which solution will Firm A and B select if Firm B moves first and Firm A moves second?
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