Question

PROVIDE EXPLANATION

- Kinko’s utility function is U(x, y) = min{2x, 6y}, where x is whips and y is leather jackets. If the price of
whips were $20 and the price of leather jackets were $20, Kinko would demand
a. 3 times as many whips as leather jackets.
b. 4 times as many leather jackets as whips.
c. 2 times as many leather jackets as whips.
d. 5 times as many whips as leather jackets.
e. only leather jackets.

- For m > p2, the demand functions for goods 1 and 2 are given by the equations, x1 = m/p2 - 1 and x2 = p1/p2,
where m is income and p1 and p2 are prices. Then the inverse demand curve of good 1 is
a. a horizontal line.
b. a vertical line.
c. a straight line with slope 2.
d. a straight line with a slope of 1/2.
e. None of the above.

Answer 1

1) for min utility function optimal bundles are

X₁ = m/ p₁ + a/b(p₂  )

let m=100. so,

X₁ = 100/ 20 + 2/6(20)

X₁ = 100/26.66= 3.75

X₂ = m/ (b/a)(p₁ )+ p₂ .

X₂ = 100/ 6/2(20) +20

X₂ = 100/80= 1.25

so Kinko would demand  3 times as many whips as leather jackets.

so, correct option is A.

2) x1 = m/p2 - 1   Then the inverse demand curve of good 1 is a vertical line because change in price of x₁ have no effect on quantity of x₁ .

so, correct option is B.