Bridget has a limited income and consumers only wine and cheese;…

Chapter 5-Applied Problem 1
Bridget has a limited income and consumers only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese $4 per pound. The last bottle of wine added 50 units to Bridget’s utility, while the last pound of cheese added 40 units.

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  1. Is Bridget making the utility-maximizing choice? Why or why not?
  2. If not, what should she do instead? Why?

Chapter 6-Applied Problem 1
In an article about the financial problems of U.S.A Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price form 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after a price increase, citing The Wall Street Journal’s experience after it increased it price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elasticity?

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Chapter 5-Applied Problem 1
Bridget has a limited income and consumers only wine and cheese; her current consumption choice is four bottles of wine and 10 pounds of cheese. The price of wine is $10 per bottle, and the price of cheese $4 per pound. The last bottle of wine added 50 units to Bridget’s utility, while the last pound of cheese added 40 units.
Is Bridget making the utility-maximizing choice? Why or why not?
If not, what should she do instead? Why?
Chapter 6-Applied Problem 1
In an article about the financial problems of U.S.A Today, Newsweek reported that the paper was losing about $20 million a year. A Wall Street analyst said that the paper should raise its price form 50 cents to 75 cents, which he estimated would bring in an additional $65 million a year. The paper’s publisher rejected the idea, saying that circulation could drop sharply after a price increase, citing The Wall Street Journal’s experience after it increased it price to 75 cents. What implicit assumptions are the publisher and the analyst making about price elasticity?