Frank & Bernanke, 5 Sample Homework Assignment 1. Assume that you derive utility from the consumption of two goods, CDs and hamburgers. The utility you receive from each good at various levels of consumption is shown in the table below. Hamburgers CD's Number Total Utility Number Total Utility_ 0 0 0 0 1 25 1 50 2 48 2 59 3 68 3 60 4 84 4 63 5 98 5 66 6 108 6 68 7 116 7 69 8 122 8 70 9 122 9 70 10 120 10 70____ a. If you have $50 to spend, and the price of CDs is $10 while the price of hamburgers is $5, determine the utility maximizing combination of hamburgers and CDs (note: CDs and hamburgers can only be purchased in integer amounts). b. What does the information in the table tell you about the 8th and 9th CDs? c. What does the information in the table tell you about the 10th hamburger? 2. Your demand function is P = 100 - .5 Q. If the price of the good is $10, find the following values. a. The quantity you demand. b. Your consumer surplus.Key 1. The MU from consuming hamburgers and CDs is shown below. MU (hamburgers) MU (CD's) 25 50 23 9 20 4 16 3 14 3 10 2 8 1 6 0 0 0 -2________________ 0____ 1a. Consuming 6 Hamburgers ($5 x 6 = $30) and 2 CD's ($10 x 2 = $20) is the utility maximizing combination of goods with an income of $50. 1b.You like the 8th and 9th CDs equally well (they yield the same total utility). 1c. You have less utility after consuming the 10th hamburger than you did before (the 10th hamburger decreased your happiness). 2.a. At P = $10, you demand 10 = 100 – .5 (Q) .5Q = 90 Q = 180 b. Your consumer surplus is ½ (b) (h) = ½ (180) (90) = ½ (16200) =
View Full Document
Unlocking...