Answered: c) How many tubes will he buy if the current price is £0.50 per tube? d) Find Andrea's income-consumption curve for tooth paste tubes for incomes between £0 and…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN: 9780190931919

Author: NEWNAN

Publisher: Oxford University Press

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Question

answer question c, d

Andrea has a budget of £21 to spend on toothbrushes and tooth paste. He
does not receive any utility from owning a toothbrush, but for the consumption
of every tube of tooth paste he gains a utility of 2 utils – but only if he owns a
tooth brush. Without a tooth brush, Andrea gains no utility from consuming
tooth paste. In addition, after consuming 10 tubes of tooth paste, a toothbrush
needs to be replaced, i.e., Andrea needs to buy a new one. The current price
of tooth brushes on the market is £5 and the current price for tooth paste is £1
per tube. Assume that Andrea aims to maximise consumer surplus.
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a) In a graph, draw total utility as a function of number of toothpaste tubes,
assuming that Andrea buys 1 tooth brush.
b) How many tubes will Andrea buy if he wants to maximise consumer
surplus, assuming that Andrea can buy any amount of tooth brushes?
What is Andrea's total consumer surplus?
c) How many tubes will he buy if the current price is £0.50 per tube?
d) Find Andrea's income-consumption curve for tooth paste tubes for
incomes between £0 and £21, assuming a price of £1 per tube.

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