Minnie gets 4 tapes for her birthday, but they are currently useless to her beca
ID: 1098841 • Letter: M
Question
Minnie gets 4 tapes for her birthday, but they are currently useless to her because she
doesn't have a tape recorder and she cannot return them for a refund. Her utility function is
U(x; y; z) = x+f(y)z:5 where z is the number of tapes she has, y is the number of tape recorders
she has, and x is the money she has to spend on other stu. Let f(y) = 0 if y < 1 and f(y) = 7
otherwise. The price of tapes is $7.99. What is her reservation price for a tape recorder? (explain or show work)
(a) 20
(b) 7
(c) 24
(d) 0
(e) None of the above.
Explanation / Answer
Minnie gets 4 tapes for her birthday, but they are currently useless to her because she
doesn't have a tape recorder and she cannot return them for a refund. Her utility function is
U(x; y; z) = x+f(y)z:5 where z is the number of tapes she has, y is the number of tape recorders
she has, and x is the money she has to spend on other stu. Let f(y) = 0 if y < 1 and f(y) = 7
otherwise. The price of tapes is $7.99. What is her reservation price for a tape recorder? (explain or show work)
(e) None of the above.