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Problem Set - Utility Max

The document presents a series of questions related to consumer behavior and utility maximization for different scenarios involving utility functions for various goods. It includes calculations for indifference curves, budget constraints, marginal utilities, and optimal consumption choices for consumers with specific budgets and prices. The scenarios involve different goods such as hotdogs, chicken biryani, movies, and dining experiences, requiring graphical and mathematical analysis to determine utility-maximizing combinations.

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pansaripriyesh2004
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0 views1 page

Problem Set - Utility Max

The document presents a series of questions related to consumer behavior and utility maximization for different scenarios involving utility functions for various goods. It includes calculations for indifference curves, budget constraints, marginal utilities, and optimal consumption choices for consumers with specific budgets and prices. The scenarios involve different goods such as hotdogs, chicken biryani, movies, and dining experiences, requiring graphical and mathematical analysis to determine utility-maximizing combinations.

Uploaded by

pansaripriyesh2004
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Q1.

Suppose you are working as a manager of Himmat Limited where you are involved in the
research arm of consumer behaviour division. You have been given the following
information about the utility function of a consumer X as follows:
U(H,C) = HC where H represents Hotdogs and C represents Chicken Biryani. You are
required to find out answers to the following questions:
a) Draw the indifference curve associated with a utility level of 12 and the indifference
curve associated with a utility level of 24. Are the indifference curves convex?
b) Suppose that hotdogs costs Rs 1 a unit, chicken biryani costs Rs 3 a unit, and X has
Rs 12 to spend on hotdogs and, chicken biryani. Graph the budget line that he faces.
c) What is the utility-maximizing choice of hotdogs and chicken biryani?
d) What is the marginal rate of substitution of hotdogs for chicken biryani when utility is
maximized?

Q2. A consumer has utility function for goods X and Y given by

U(X,Y)=X0.2Y0.3
a) What is the consumer’s marginal utility for X? What is his marginal utility for Y?

b) Suppose the price of X is equal to 4 and the price of Y equal to 6. What is the utility
maximizing proportion of X and Y in his consumption? [That is, if he is a utility
maximizer, how many units of X will he consume in terms of units of Y that he
consumes.] Use any appropriate method you like to solve the problem.

c) If the total amount of money he is willing to spend on the two goods is equal to 60, how
much of each will he consume?

Q3. Sarah enjoys two activities: going to the movies (M) and dining out (D). Her utility
function is U(M,D)=M⋅D. Each movie ticket costs $10, and each dining experience costs $20.
Sarah has a monthly budget of $200.

a) Determine the combination of movies and dining experiences that maximizes Sarah's
utility.
b) Calculate the maximum utility Sarah can achieve.
c) If the price of a dining experience increases to $30, how should Sarah adjust her
spending to maximize her utility?

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