Assume that Deanna has the following utility function for grapefruit and can- taloupe:u(g,c) =g^0. The price of a grapefruit,pg, is5and the price of…

Assume that Deanna has the following utility function for grapefruit and can- taloupe: u(g,c) = g^0.3c^0.5. The price of a grapefruit, pg, is 5 and the price of a cantaloupe, pc, is 8. Deanna’s income is 160.

a. Find Deanna’s optimal consumption bundle. Show all of your work for the maximization problem, including a Lagrangian if appropriate

b. Assume that the price of a grapefruit falls to 4. Calculate Deanna’s demand for grapefruit and cantaloupe at the new price. Again, show work to support your answer

c. Calculate the compensated income, m′

d. What is the numeric value of the substitution effect? Solve for both goods

e. What is the numeric value of the income effect? Solve for both goods

Join the Conversation

3 Comments

  1. 661623 763084Aw, this was a actually nice post. In thought I would like to put in writing like this furthermore – taking time and actual effort to make a very great article but what can I say I procrastinate alot and by no indicates appear to get something done. 61544

Leave a comment

Your email address will not be published.