Question #64555

3. Nagehan derives a utility from consuming Caviar (C) and Champagne (W). Her utility function is given as

U= U(C,W) = 5C2/3W1/3

The price of a tin of caviar (Pc) is 50 YTL, while the price of a bottle of champagne (Pw) is 8 YTL.

a. Determine the quantities of caviar and champagne Nagehan must purchase in order to receive a utility level of 200.

b. Determine the minimum expenditure Nagehan must make in order to achieve a level of utility equal to 200.

c. Compute the value of µ* for this problem and interpret its value as it specifically applies to Nagehan.

d. Determine how changes in income (M) will affect Nagehan’s demand for caviar.

e. Determine how changes in price of a tin of caviar (Pc) will affect Nagehan’s demand for caviar and graphically derive the demand curve for caviar.

U= U(C,W) = 5C2/3W1/3

The price of a tin of caviar (Pc) is 50 YTL, while the price of a bottle of champagne (Pw) is 8 YTL.

a. Determine the quantities of caviar and champagne Nagehan must purchase in order to receive a utility level of 200.

b. Determine the minimum expenditure Nagehan must make in order to achieve a level of utility equal to 200.

c. Compute the value of µ* for this problem and interpret its value as it specifically applies to Nagehan.

d. Determine how changes in income (M) will affect Nagehan’s demand for caviar.

e. Determine how changes in price of a tin of caviar (Pc) will affect Nagehan’s demand for caviar and graphically derive the demand curve for caviar.

Expert's answer

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