DSE 2009

[vaibhy]

Questions 26 and 27 Suppose that a typical graduate student at the Delhi School of
Economics lives in a two good world, books ( x ) and movies ( y ), with utility
function
u(x, y) = x^1/5 y ^4/5. Prices of books and movies are 50 and 10 respectively.
Suppose the University is considering the following schemes.
Scheme 1: 750 is paid as fellowship and additional 250 as book grant. Naturally, book
grant can only be spent on books.
Scheme 2: 1000 as scholarship and gets one movie free on each book they purchase.
Believing that books and movies are perfectly divisible, compute the optimal
consumption bundle under each scheme.
26. Optimal consumption bundle under scheme 1 is
a) (4 books, 80 movies)
b) (5 books, 75 movies)
c) (6.5 books, 57.5 movies)
d) (10 books, 50 movies)

27. Optimal consumption bundle under scheme 2 is
a) (4 books, 80 movies)
b) (4 books, 84 movies)
c) (5 books, 75 movies)
d) (5 books, 80 movies)

how to go about it?

[Bhaskar Biswas]

you can check, i have posted the answer to your question under another topic.... where you posted the same question...

hope you get it, and my answer is correct...

[Bhaskar Biswas]

you can check, i have posted the answer to your question under another topic.... where you posted the same question...

hope you get it, and hope that my answer is correct...

[duck]

26> budget constraint is : 50x +10y =750
by solving optimisation problem, u will get x=3 , however he is given 250 as book grant so he has to purchase 5 books(x) and spend all of his income on movies.
So, optimum: x=5 and y=750/10= 75

27> budget constraint is: 50x +10y =1000 +10y
                              => 40x + 10y=1000
(since, he gets one movie free on each book he purchase)

Now, solve like all other problems,
u will get x=5 and y=80