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Question: problem 1 20 the following table has different combinations of...

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Problem 1 (20). The following table has different combinations of hamburgers and hot dogs that Alex can buy

Combination   Hamburgers   Hot dogs
A   0   8
B   1   6
C   2   4
D   3   2
E   4   0

(a)   Graph Alex’s budget line, putting hot dogs on the X-axis
(b)   Alex’s income is $8 per day. What is the price of a hot dog? Of a hamburger?
(c)   What is the slope of the budget line?

Problem 2 (10). The following figure contains several budget lines for Sarah, who uses her income to purchase two goods, cheese and crackers:

(a)   A movement between which two budget lines represents an increase in income?
(b)   A movement between which two budget lines represents an increase in the price of a pound of cheese?
(c)   A movement between which two budget lines represents an increase in the price of a box of crackers?

Problem 3 (10). Ricardo likes to rent videos and attend concerts. The videos cost $4 and the concerts cost $40. Ricardo’s marginal utility from the last video is 20 units. Ricardo is maximizing his utility. What is his marginal utility from the last concert he attended?

Problem 4 (20). Stan is shopping for pants and belts. He has a budget of $100. The price of a pair of pants is $20 and the price of a belt is $5. His marginal utility schedules are given below:

Quantity of pants   Marginal utility from pants   Quantity of belts   Marginal utility from belts
1   220   1   85
2   180   2   65
3   140   3   45
4   100   4   25
5   60   5   20

What combination of pants and belts does Stan buy? Explain your answer

Problem 5 (10). For a consumer, the marginal utility of good A is 25 and its price is $5. The marginal utility of good B is 72 and its price is $12. The consumer has allocated his entire budget. Is this consumer maximizing his total utility? If not, what should the consumer do?

Problem 6 (30). The table below gives total utility Jamal derives from consumption of eclairs and cream puffs.
Quantity of eclairs   Total utility of eclairs   Quantity of cream puffs   Total utility of cream puffs
0   0   0   0
1   126   1   54.0
2   243   2   103.5
3   342   3   145.5
4   414   4   177.0
5   441   5   196.5

Jamal has $12 to spend on these two goods. The price of an eclair is $3 and the price of a cream puff is $1.50.

(a)   In order for Jamal to maximize his utility, how many eclairs and cream puffs should he buy?
(b)   Suppose that the price of an eclair increases to $6. Jamal’s income does not change neither does the price of a cream puff. What combination of the two goods will Jamal buy now?

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