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Anarel [89]
3 years ago
6

Tim spends his income on donuts (D) and coffee (C). Coffee is $2 per cup and donuts are $1 each. Assume that Tim has $10 to spen

d, and his utility function is given by ????(D,C)=D0.5C0.5 . For this utility function, ????????D=0.5D−0.5C0.5 and ????????C=0.5D0.5C−0.5 . a. Calculate the optimal number of donuts and coffee for Tim to purchase. Assume that he can purchase partial donuts or cups of coffee. Round answers to two places after the decimal where necessary.
Business
1 answer:
stealth61 [152]3 years ago
7 0

Answer:

Optimal number of donuts = 5 Donuts

Optimal cups of coffee = 2.5 cups.

Explanation:

Optimal numbers of donuts and coffee can be calculated as follow

First, we need to determine the budget constraint as below

M = ( P(D) x D ) + ( P(C) x C )

Placig values in the formula

10 = D + 2C

Now make utility function as:

U(D,C) = D0.5 C0.5

Marginal Utility donuts

MU(D) = 0.5D-0.5C0.5

Marginal Utility Coffee

MU(C) = 0.5D0.5C-0.5

The formula for marginal rate of substitution

(MRSD,C)= MU(D) / MU(C)  = 0.5D - 0.5C0.5 / 0.5D0.5C - 0.5  = C/D

Now calculate the optimal consumption level  

MRSD,C = P(D) / P(C)

C/D = 1/2

D = 2C (Equation 1 )

Placing the value of D resulted from equation 1, in the budget constraint we as below

10 = D + 2C

10 = 2C + 2C

10 = 4C

C = 10/4 = 2.5

NOw place the value of C in equation 1

D = 2C = 2(2.5) = 5

Optimal number of donuts = 5 Donuts

Optimal cups of coffee = 2.5 cups.

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Explanation:

The contribution margin is calculated by using following formula:

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In International Imports,

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Answer:

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d. $6,120 U

Explanation:

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Omega Custom Cabinets produces and sells custom bathroom vanities. Assume that labor is the only input that varies for the firm.
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Answer:

The answer is option a). For the 11th worker, the marginal profit is $600.

Explanation:

<em>Step 1: Determine the initial profit for the 10 workers as shown;</em>

initial profit=revenue from sales-cost of labor

where;

revenue from sales=sale per unit×number of units

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<em>Step 2: Determine the final profit for the 10 workers as shown;</em>

final profit=revenue from sales-cost of labor

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marginal profit=final profit-initial profit

where;

final profit=$6,600

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replacing;

marginal profit=6,600-6,000=$600

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