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Math Help - Microeconomics question (preferences)

  1. #1
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    Microeconomics question (preferences)

    Hello,

    I am having lots of trouble with this question regarding preferences, and was wondering If someone can lead me to the answer

    Q: Tom loves Green Ox energy drinks (good 1) and Paris Horton coffee (good 2). His preferences are described by the utility function U(x1, x2) = min{x1, x2}.
    Prices are p1 = 2 and p2 = 1, and his income is m = 120 dollars

    How many energy drinks and how many coffees will Tom consume? What if Tom finds that he likes energy drinks twice as much as coffee?
    Give a utility function that describes his new preferences.


    Thank you very much
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  2. #2
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  3. #3
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    Re: Microeconomics question (preferences)

    1) U=min{x1, x2} -> perfect complements -> buying in "a pack" -> the pack consists of one good 1 and one good two -> total price for the pack is p1 + p2 = $3 -> m/pack price = 120/3 = 40 packs -> 40 energy drinks, 80 coffees

    2) "he likes energy drinks twice as much as coffee" -> energy drink utility is two times bigger -> U=min{2*x1, x2} (this is a new utility function) -> analogically as in 1)
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