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