Explore BrainMass


Indirect Utility: Applying Cobb-Douglas

An indirect utility function is, among other properties, zero-degree homogeneous in the prices and nominal income. That is, if you scale up each price and nominal income in the same positive proportion t, indirect utility remains unchanged. Explain why this is true. (Hint: real income remains constant). Now demonstrate t

economists' model of individual choice

Using the economists' model of individual choice (comparing the marginal costs and marginal benefits of a choice, incorporating the level of satisfaction or "utility" we derive from the choice, and considering the relative MU/P of a good we buy to that of another), choose, and explain your motivation for four personal decisions

Price change and substitution vs income effect; the principle of diminishing marginal utility explained; and the relationship between the ratio of marginal utility and the price of each good consumed in consumer equilibrium.

1) Explain how a price change is affected by (a) the substitution effect, (b) the income effect. 2) If someone is very thirsty and drinks five glasses of water, explain how the principle of the diminishing marginal utility is related to drinking each glass of water. 3) Explain the relationship between the ratio of marginal

Health insurance

1. Joe is currently unemployed and without health insurance coverage. He derives utility (U) from his interest income on his savings (Y) according to the following function: U = 5(Y1/2) Joe presently makes about $40,000 of interest income per year. He realizes that there is about a 5 percent probability that he may suffer


5. Use consumer theory (i.e. indifference curves and budget constraints), where the usual assumptions apply, to illustrate the following: Assume the individualâ??s utility is an increasing function of medical goods (m) and all other goods (X). That is, Utility =U (m,x) where delta u/delta m >0, delta u/delta x >0 , and

Calculating the Equivalent Annual Worth

A rural utility company provides standby power to pumping stations using diesel-powered generators. An alternative has arisen whereby the utility could use a combination of wind and solar power to run its generators, but it will be a few years before the alternative energy systems are available. The utility estimates that the ne

Determine marginal utility

Suppose the following table reflects total satisfaction (utility) derived from eating pizza... a. What is the marginal utility of each pizza? b. What causes the marginal utility to diminish? Please show work.

Marginal Utility: Utility-Maximizing Choice

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 the 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 u

Economics: Utility Function

** Please see the attached file for a PDF formatted copy of the problem description ** Two consumers each have an income of $300, with which they buy good X (costing $5) and good Y (costing $4). If A's preferences are given by U_A = X^2 Y and B's preferences are given by U_B = X(Y+100), what is the optimal amounts of X and Y

Income & Substitution Effects of Pepsi and Coca-Cola Pricing

What would be the consumer buying response to Coca-Cola if the price of Pepsi doubled? If the prices of Coca-Cola and Pepsi remained constant, what would be the consumer's typical buying response to these products if their income was reduced by 30%? Suppose all carbonated beverages tripled in price. How would the concep

Stocks/Bonds/ Annuities

Please see the attachment. Mark Goldsmith's broker has shown him two bonds. Each hasa maturity of 5 years, a par value of $1,000.00, and a yield rate to maturity of 12%. Bond A has coupon interest rate of 6% paid annually. Bond B has a coupon interest rate of 14% paid annually. A. Calculate the selling price for each

Total Utiliilty and Marginal Utility

Using the following information, calculate total utility and marginal utility. A. Plot the total utility curve B. Plot marginal utility directly below total utility C. At what marginal utility value does total utility reach at maximum? Number of utils for the first unit 300 Number of utils for the second unit

Quantities to Maximize Utility

You are choosing between two goods, X and Y, and your marginal utility from each is as shown below. if your income is $9 and the price of X and Y are $2 and $1, respectively, Units of X Marginal Utility for X 1 10

Utility Function and Expected Profit

A manager has a utility function U = C 0.5 if she does not work hard and U = C 0.5 - 3 if she does. Expected profit will increase from 1,000 to 1,500 if she works hard. The manager receives compensation C equal to 144 plus a portion x of any profit in excess of 1,000. What is the value of x that will make the manager indifferent

Utility Function- Shirking and Working Hard

A manager has a utility function U = C 0.5 if she does not work hard and U = C 0.5 - 1 if she does. Expected profit will increase from 1,400 to 1,600 if she works hard. The manager receives compensation C equal to 82 plus a portion x of any profit in excess of 1,400. What is the value of x that will make the manager indifferent

Individual purchasing insurance

In state of nature 1 the individual has income w, whereas in state of nature 2 the individual's income is y < w. The probabilities that these states will occur are (1 - p) and p, respectively. The individual can purchase insurance before the state of nature is known; an increase in income of s in state 2 can be purchased by a re

Utility Maximization: Example Problem

Your bank is developing a marketing campaign to appeal to new customers. In a meeting, your manager asked the following question: "Do individuals have any other economic responsibility rather than to maximize their own utility?" How would you respond to this question? How might the bank tie in the concept of utility maximization

Utility and Marginality

The concept of utility and marginal utility can also be applied to income. Please read a summary of three political philosphies in Section 3: The Political Philosphy of Redistribution Income Utilitarianism was founded by the English philosophers John Stuart Mill and Jeremy Bentham. Liberalism was developed by John Rawls (1971

Solving Utility Maximization Problems

Sam enjoys collecting old editions of microeconomic theory books. Unfortunately, he has no income from employment, but he does accept bags of trash to be buried in his yard for a fee. Suppose the price of each old edition microeonomic book is $2, and San charges $1 for each bag of trash. Sam's utility is given by: U = min(2B, 20

Review questions

73. Joseph Gallo relates that he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He let people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same one. a. What does it tell us about people? b. Ca

Budgetary control and responsability accounting

Zelmer Company uses budgets in controlling costs. The August 2008 budget report for the company's Assembling Department is as follows. ZELMER COMPANY Budget Report Assembling Department For the Month Ended August 31, 2008 Difference Favorable F Manufacturing Costs Budget Actual Unfavorable U Vari

Incremental analysis

The management of Borealis Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called WISCO, is a component of the company's finished product. The following information was collected from the accounting records and production data for the year e

Managerial Economics

Need some help writing a paper...on how the below game should be set up, played and solved... a consumer decide whether to buy life insurance or not. To keep the game relatively simple, assume the life insurance being considered is term life, i.e. insurance without an accumulating investment value. Keep in mind that your p

Managerial Economics

1. Use the ideas of consumer surplus and producer surplus to explain why economists say competitive markets are efficient. Why are below- or above-equilibrium levels of output inefficient, according to these two sets of ideas? 2. Suppose the cross elasticity of demand for products A and B is +3.6 and for products C and

Manangerial Economics

'The Theory of Individual Behavior', is devoted to the use of indifference analysis to build a framework for demand theory. Indifference analysis goes to great lengths to explain consumer behavior and how consumers make choices between options available to them. The options they face include budget constraints, different prefe


What is meant by the term "utility" and how does it relate to purposeful behavior?

Economics help

1. A firm will only earn normal profit in the long run a. if firms can freely enter or leave the market b. if firms do not try to maximize profit c. only if the industry is perfectly competitive d. whenever products are not differentiated 2. Under which of the following market conditions is it most difficult to maintai