A tlity function is given as 50- 45 40- 35- 30- 25- 20- 15 10- 5 where B represe

Question

A tlity function is given as 50- 45 40- 35- 30- 25- 20- 15 10- 5 where B represents the quantity of books consumed and M represents magazines. This utility is shown via indifference curves in the diagram to the right. If the quantity of books is held constant at 20 units, then the loss in utility by giving up 10 magazines (bundle V to P) is 5.86. (Round your answer to two decimal places and do not include a minus sign.) How many additional books are necessary to compensate the consumer for this loss in magazines such that total utility is the same as at point V? units. (Enter your response as an integer.) Use the point drawing tool to show this bundle. Label this point'R 0 5 10 15 20 25 30 35 40 45 50 Books (B) Carefully follow the instructions above, and only draw the required object.

Explanation / Answer

U = (BM)1/2

U at point V = (20*20)^1/2 = 20

U at point P = (20*10)^1/2 = 14.14

Loss in utility = 20-14.14 = 5.86

We need (BM)^1/2 = 20

(B’*10)^1/2 = 20

B’*10 = 400

B’ = 400/10

B’ = 40

Thus additional requirement = B’-B at P = 40-20 = 20

Requirement = 20 units.

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