Question

Ece is at the supermarket buying her bi-weekly groceries. As she arrived at the store right before closing, not much is left on the shelves; so her purchases are limited to beef, B, and an assortment of organic vegetables, V. Beef costs ₺50/kg and vegetables ₺10/kg. Her utility function is expressed as U(B, V) = B^2V She has ₺150 to spend. Please answer the following questions using this information: a. Given the vegetables cost less than beef, explain why Ece would not only buy vegetables. b. Write Karen’s constrained maximization problem (objective function subject to her budget constraint). c. Using the Lagrangian multiplier technique, find how much beef and vegetables would Zeynep buy? d. If the utility function of Ece were Unew(B,V)= 2 ln B + ln V, how would your response to part (c) change? After re-solving the question using the Lagrangian technique, discuss your findings verbally; more explicitly, what is the relationship between the two utility functions in terms of preference orderings? For this part, you are welcome to make a search on Internet or refer to your math texts.

Answer 1

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