03 Jun Question Chapter 5: 1. Bridget has a limited income and consumes on
Question
Chapter 5:
1. Bridget has a limited income and consumes only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese is $4 per pound. The last bottle of wine added 50 units to Bridget’s utility, while the last pound of cheese added 40 units.
a) Is Bridget making the utility-maximizing choice? Why or why not?
b) If not, what should she do instead? Why?
2. Suppose Bill is on a low- carbohydrate diet. He can eat only three foods: Rice Krispies, cottage cheese, and popcorn. The marginal utilities for each food are tabulated below. Bill is allowed only 167 grams of carbohydrates daily. Rice Krispies, cottage cheese, and popcorn provide 25, 6, and 10 grams of carbohydrates per cup, respectively. Referring to the accompanying table, respond to the following questions:
Units of food Marginal utility Marginal utility Marginal utility
(cups/day) of Rice Krispies of cottage cheese of popcorn
1 175 72 90
2 150 66 80
3 125 60 70
4 100 54 60
5 75 48 50
6 50 36 40
7 25 30 30
8 25 18 20
a. Given that Bill can consume only 167 grams of carbohydrates daily, how many cups of each food will he consume daily? Show your work.
b. Suppose Bill’s doctor tells him to further reduce his carbohydrate intake to 126 grams per day. What combination will he consume?
Chapter 6:
3. What effect, if any, does each of the following events have on the price elasticity of demand for corporate-owned jets?
a. Reduced corporate earnings lead to cuts in travel budgets and increase the share of expenditures on corporate jet travel.
b. Further deregulation of the commercial airlines industry substantially increases the variety of departure times and destinations offered by commercial airlines.
c. The cost of manufacturing corporate jets rises.
d. A new, much more fuel-efficient corporate jet is introduced.
5. U.S. cigarette makers face enormous punitive damage penalties after losing a series of class-action lawsuits that heaped penalties amounting to several hundred billion dollars on the tobacco industry. In spite of the huge penalties, The Wall Street Journal reported, “The damage (to cigarette makers) is generally under control.” What action do you suppose the cigarette companies took to avoid bankruptcy? Why did this action succeed?
7. As manager of Citywide Racquet Club, you must determine the best price to charge for locker rentals. Assume that the (marginal) cost of providing lockers is 0. The monthly demand for lockers is estimated to be Q = 100 – 2P where P is the monthly rental price and Q is the number of lockers rented per month.
a. What price would you charge?
b. How many lockers are rented monthly at this price?
c. Explain why you chose this price.
8. The demand curve for haircuts at Terry Bernards Hair Design is P= 20 – 0.20Q where Q is the number of cuts per week and P is the price of a haircut. terry is considering raising her price above the current price of $15. Terry is unwilling to raise the price if the price will cause revenues to fall.
A. Should Terry raise the price of haircuts above $15. Why or Why not?
B. Suppose demand for Terry’s haircuts increases to P = 40 – 0.40Q. At a price of $15, should Terry raise the price of her haircuts? Why or Why or Why not?
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