1. A consumer is at equilibrium at one of the 4 points (A, B, C, or D) shown in Figure 1 (attached to this assignment).
a. If we know that the consumer is maximizing his/her utility, and that the price of Skittles is not the same as the price of M&M's, at what point is the consumer operating? Explain your logic.
b. If the price of M&M's is $.50 each, what is the income of the consumer described above? Explain.
c. How much does the consumer spend on M&M's? On Skittles? Explain your logic.
d. What is the price of Skittles for this consumer? Explain how you reached your answer.

2. Southwest Airlines gives away hundreds of tickets each year through its frequent flyer programs, with free ticket for each 16 flight segments flown on the airline. The average airline ticket costs $300 and is for a 1,000-mile round trip. Given this information, evaluate the following statement: Southwest could have the same effect on demand by eliminating their frequent flyer program and simply lowering the average ticket price by 10 percent.

1.
Utility maximization occurs where the budget line is tangent to the indifference curve. This occurs only at points B and A. Since at point B, the prices are the same, the answer must be A.

Income can be calculated by multiplying the ...

Solution Summary

Frequent flyer programs and maximizing utility with indifference curves

Let
U(x,y) = x * (y^2)
1. Derive the indirect utility function as a function of px, py and M, where px and py
are respectively the prices of the two goods x and y, and where M is the consumer's
income.
2. Now calculate the level consumption of both goods and the level of utility achieved
by this consumer if prices a

Under profit-maximizingequilibrium, which of the following will not be equal to the other three?
a) the marginal revenue product of input X.
b) The price of input X.
c) the marginal cost of input X.
d) the marginal product of input X.
e) all will be equal.

1. Using Indifference Curve and Budget Line analysis, graphically demonstrate the equilibrium of a consumer who is maximizingutility. Briefly explain.
2. Using Indifference Curve and Budget Line analysis, graphically demonstrate how you can derive a demand curve. Briefly explain.
Note: In the above questions, assume a bun

Consider a market with the following supply and demand functions:
QD = a0 - a1PD a0, a1 > 0
QS = b0 + b1PS b0, b1 > 0
(a) Find the equilibrium quantity and price as a function of the parameters (use any method you like). Are there any additional restrictions that you must impose on the parameters for thi

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.

Let M(U)a = z = 10 - x and M(U)b = z = 21 - 2y, where z is marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B.
Assume that the consumer has $10 to spend on A and B -- that is, x + y = 10.
How is the $10 best allocated between A and B?
How much utilit

53. A consumer spends all of her income on two goods, coffee and doughnuts. She purchases coffee at 25 cents a unit with a total utility of 800 and a marginal utility of 12. Doughnuts are purchase at 75 cents a unit with a total utility of 200 and a marginal utility of 24. In order to reach consumer equilibrium, she should co

This question is about Walrasian equilibrium in an exchange economy with 2 goods and 2 consumers. Taxes are introduced in the question to solve for the equilibriumand allocation under Pareto theorem.
Question (2)
Consider an exchange economy with 2 goods and 2 consumers . Consumer 1's initial endowment is and consum

1) consider a consumer with the following utility function U=f(x,y)=4xy
a) derive demand functions for both commodities.
b) Px=2, Py=2.5, I=40, find the utilitymaximizing consumption combination.
2) A firm produces two commodities, Q1 and Q2, in pure competition. P1=15 and P2=18. C=2Q1^2 + 2Q1Q2 + 3Q2^2
a) form the prof