CORRECT #4!!!!

[Sushant Mohan]

Hey Guys,

So while I was in the shower, I realized that I may have messed up on Problem 4 (the book problem) (lot of thinking goes on in the shower).  I used MUx/Px = MUy/Py to find Py...but that condition only holds at optimal bundles.  If you think about it, that equation is basically saying that the utility you get from X is the same as the utility you get from Y....so you have no tendency to exchange one good for another a.k.a optimal point.  But the whole point of the question is to find the optimal point not to find a price of Y that would make a point optimal.  

Sooo...I'm going to say that you guys did it right the first time by plugging into the budget line to find Py... the question says "Ray ONLY buys hamburgers and bottles of root beer out of a weekly income of $100."  So I guess it's safe to assume that he is using his whole income...plus, once you discard the approach i had used, you're basically left with the Budget line...

So here is my solution:

X= root beer

Y= hamburgers

Px(x) + Py(y)=100

2(20) + Py(15) = 100

Py = $4

Now we can use the equation MUx/Px = MUy/Py to see if it holds.  When you do that, you get:

6/2 > 8/4

So, in conclusion, you get more utility from every dollar spent on X (rootbeer) than spent on Y, and thus you should buy more rootbeer.  

Sorry about straying you guys...hope this makes sense and hope this finds you in time to change your answers. 

-Sushant

[Tony]

HAHA that ONLY makes the difference! :D

Tony

[Tony]

Goes to show that the only problem with groups is the one track mind to be collectively correct and accept one thing to be true. I thought I read it that way but I figured if I'm wrong and your logic was sound that I must have been wrong. Boo! :D  Well, Guess it all worked out in the end. :D

tony