Bandy has an income of $75 and a utility function U = 20x 1 1/2 + x 2 . The pric

Question

Bandy has an income of $75 and a utility function U = 20x11/2 + x2 . The price of good 1 is $2 and the price

of good 2 is $1. How many units of good 1 will Bandy demand?

a. 35

b. 21

c. 23

d. 25

e. 48

Patience has a utility function U(c1, c2) = sqrt( c1) + 0.8 sqrt( c2). , where c1 is her consumption in period 1 and c2 is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

a. 0.75

b. 0.13

c. 0.25

d. 0

e. 0.38

Explanation / Answer

c. 23

e. 0.38

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