05 IVICIOECONOMICS I Answer TWO questions worth 30 marks each 1. Doreen is looking for a flat to rent in Brighton. a. In

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05 Ivicioeconomics I Answer Two Questions Worth 30 Marks Each 1 Doreen Is Looking For A Flat To Rent In Brighton A In 1 (162.75 KiB) Viewed 77 times

05 IVICIOECONOMICS I Answer TWO questions worth 30 marks each 1. Doreen is looking for a flat to rent in Brighton. a. In choosing a flat, she cares about two characteristics: the number of bedrooms (x), and the number of bathrooms (y). Her utility function is U(x,y) = min(x, 2y). She has £1000 to spent on rent per month. The rental price per bedroom in Brighton is £400, and the price per bathroom is £200. (For example, a flat with three bedrooms and two bathrooms would rent for £1600 per month.) How many bedrooms and bathrooms does Doreen choose to rent optimally? [10 marks] b. Doreen now needs to furnish her flat She has £500 to spend. However, she would also like to buy some clothes for her new job. The cost of furniture fis £50 per unit and the cost of clothing cis £20 per unit. Her utility function over furniture and clothing is U(fc) = 10.3c07. How much does she spend in total on furniture, and on clothing? [5 marks] C. The local furniture shop runs a flash sale of 50% off, all prices. How much does Doreen now spend on furniture, and on clothing? Explain. [5 marks] d. Having rented and furished a flat, and purchased clothing for her new job, Doreen now wants to treat herself to a nice restaurant meal. Her preferences over pizza p and vegan burgers v are given by the following utility function: U(p, v) = 2p + v. i. What is her marginal utility from pizza? [2 marks] ii. What is her marginal utility from vegan burgers? [2 marks] iii. What is diminishing marginal utility? Does this utility function exhibit diminishing marginal utility only in pizza, vegan burgers, both or neither? Explain why [6 marks] O