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The solution to Utility maximization

Sam enjoys collecting old editions of microeconomic theory books. Unfortunately, he has no income from employment, but he does accept bags of trash to be buried in his yard for a fee. Suppose the price of each old edition microeonomic book is $2, and San charges $1 for each bag of trash. Sam's utility is given by: U = min(2B, 20-T), where B is the number of old edition books, and T is the number of bags of trash collected by Sam. Note: U is the minimum of 2B and 20 - T, and so this is not a differentiable function.

A. With T on the vertical axis and B on the Horizantal axis, graph Sam's indifference curve for U = 4

B. Determine the values of B and T that maximize Sam's utility.

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M927839

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