Jane spends $210 per month on wine and beer. Her utility function is given by TU

Question

Jane spends $210 per month on wine and beer. Her utility function is given by TU = 100WB, where W represents the number of bottles of wine that she buys and B represents the number of cases of beer that she buys. If wine costs $10 per bottle and beer costs $15 per case, she will maximize utility by buying: 10.5 bottles of wine and 7 cases of beer 2 bottles of wine and 3 cases of beer equal amounts of wine and beer 10 bottles of wine and 13.33 cases of beer none of the above. John spends his budget on food and clothing each month. His utility function is given by TU= 100C^0.25F^0.75. The marginal rate of substitution of clothing for food is: 0.66 C/F 0.33 F/C 0.25FC 0.33F^2c 25F/C. The absolute value of the slope of the indifference curve is called the: marginal cost. Marginal revenue. Marginal rate of substitution. Average rate of substitution. Betty spends all her income on cheese and crackers. She finds that the marginal utility of cheese is 10 and the marginal utility of crackers is 15. The price of cheese is $5 per unit and the price of crackers is $3 per unit. At this point, Betty: should consume more crackers and more cheese should consume more crackers and less cheese is maximizing her utility subject to her budget constraint should consume more cheese and fewer crackers should switch her consumption over to other goods that she likes better

Explanation / Answer

6. b) 2 bottles of wine and 3 cases of beer because by consuming this combination firm's ratio of MU becomes equal to its price level.

MUw / MUb = Pw/Pb = $ 10/ $ 15 = 2/3

7. MRS of clothing for food = MU of clothing / MU of food = 0.25(100) C-0.75.F0.75 / 0.75(100)C0.25.F-0.25

= 0.33F/C

Therefore, answer is b) 0.33F/C

8. c. Marginal rate of substitution

9. d. should consume more cheese and fewer crackers

MU of cheese / Price of cheese = MU of crackers / Price of crackers

10/5 = 15/3

2 < 5

Since, cheese is providing less utility so to attain optimum, consumption of cheese will increase.

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