Somebody please explain the following question. I know its a very simple question, and i managed to do it, but need to different and a better approach to solve it.
Q15- Consider Ms. Bijlee whose utility fn is min{E.W}, where E is electricity consumption and W- Widgets. Income is 10 and price of E and W are 1. In order to curb Ms. Bijlee's electricity consumption, the electricity company decides to impose a surcharge of RE.1 on every unit of electricity consumed in excess of 4 units. What is the resulting reduction in Ms. Bijlee's electricity consumption?
a)1/4
b)1/5
c)1/3
d)1/6
We know, if there is no surcharge she will consume 5 units of Electricity.
Now, if Surcharge is imposed but on every unit excess of 4 units..then we can infer that she will definitely consume E=4. so, W=4 (as utility is min). Therefore, she is left with income of 2rs after surcharge.
So, we can write the budget constraint as: 2E+W=2
=> E=W= 2/3.
=> Total consumption of E = 4+2/3 =14/3
Locked
