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Problem i. The consumer side analogue to firm's goal of profit maximization is the goal of utility maximization subject to a budget constraint.
1. Problem
i. The consumer side analogue to firm's goal of profit maximization is the goal of utility maximization subject to a budget constraint. Utility means satisfaction. So let's consider an individual who consumes only two goods: ale and bread. The quantity of ale is given in pints/week and the quantity of bread is given in loaves per week. Suppose the price of ale is $2/pint and the price of a loaf of bread is .50/load.
Let Income $8. The consumer's utility is given below.
Let
0 0 0 0
1 40 1 15
2 70 2 23
3 90 3 30
4 100 4 35
5 105 5 38
6 107 6 40.5
7 108 7 42
8 108.5 8 43
a. Which (Ale, Bread) bundle maximizes this consumer's utility given the
budget constraint
b. Does this bundle violate our "bang for the buck" rule for maximization?
Explain.
Special Utility Functions
Compute U for the following functions and bundle.
i. U ( ) =
(4, 0)
(3, 1)
(2, 2)
(1, 3)
(0, 4)
