Question

Consider an individual who has preferences over Hamburgers (H) and Soda (S) represented by the following utility function: U(H,S)=H^0.9 + 3S. The price of a Hamburger is $4 and the price of a Soda is $3. The individual has a budget of B (you don’t know the exact amount). You are given the following marginal utilities: MUH=0.9H^ -0.1, MUS=3.

A) Find the demand functions for this individual.

B) Characterize what will happen over every feasible size of B (ie. zero to infinity). There are multiple cases to consider (Hint: Try to think about what happens to MUH when H=0, then what happens as it increases).

C) Suppose the individual tells you (assuming they satisfy all standard assumptions made at the consumer level) that they consume 2 sodas. What is their budget?

Answer 1

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