Intermediate Microeconomics

Fall 2020
ECON-3100

Home Work -1
Points: 100

(Point Distribution : 25+ 25+25+25)

1. Suppose a teenager has $20 and likes both rap music (R) and country music (C) with a set of
preferences so that U = C1/2R1/2. Suppose that the iTunes price of a rap music song is
and the price of a country music song is . What is the greatest level of
affordable utility?

2. Determine whether the following utility functions have strictly convex indifference curves
(Use diagram and/or calculus ) .

a. U= x11/2 + x21/2
b. U= min(x1/5, x2/2)
c. U = x13/5 x24/5
d. U=( x1 + x2)3

3. Consider the following utility functions ((Use diagram and/or calculus ).

a. U= x14 x24
b. U= x11/4 x21/4
c. U = 5x1+3x2

i. Find MRS for each function

ii. Graph the indifference curve for U= 1 for each utility function
. iii. Check for convexity/strict convexity, monotonocity/strict monotonocity) axioms.
iv. Compare between MRS of (a) and (b), and comment.

4. Suppose a cup of coffee at the campus coffee shop is $2.50 and a cup of hot tea is $1.25.
Suppose a student’s beverage budget is $20 per week. Suppose the student simply prefers more
caffeine to less and that the tea sold has exactly one-third the caffeine as the coffee. Find the
students optimal bundle and the maximum utility level.