Q10.?Joan's utility depends on two commodities: her view of the sea and wine. Her utility function...

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Q10.?Joan's utility depends on two commodities: her view of the sea and wine. Her utility function is :

?U = 24x - 6x2+ 4y

where?x = hours of view "consumed" per day

?y = wine.

The view is free, i.e. Px = 0. The price of wine Py = 5. Her available income is 10. Assume that Joan does not look at the view beyond the point where it bores her, i.e. when the marginal utility of the view is negative.

(a)?Sketch the budget constraint and indifference curves.

(b)?What would be her utility maximizing choice of view and wine?

?(c)?If the view were blocked and she were fully compensated with wine so that she felt no better or worse than at the position chosen in (b), how much additional wine would she have to be given as compensation?

Robert · Accepted Answer

Answer (a): It is a problem on utility maximization. a person is consuming two commodities. First one 
is indicated by X. It is the number of hours he is viewing sea. Second one is quantity of wine 
consumed. It is Y. His utility function is-
For maximizing his utility he has $10. Cost of wine (Y) per unit is $5. So he can buy at best 2 units of 
wine. Cost of sea view is zero. So no money is required to view it. Thus he will always buy 2 units of Y 
for maximizing utility.

Q10.?Joan's utility depends on two commodities: her view of the sea and wine. Her utility function is : ?U = 24x - 6x2+ 4y where?x = hours of view "consumed" per day ?y = wine. The view is free, i.e....

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