Lisa consumes only pizzas (P) and burritos (B). Her utility function is U = P0.5 B0.5. The price of per pizza is $10 and the price per burrito is $5. In equilibrium, Lisa consumes 4 pizzas
Using Lisa's utility function, calculate how many burritos she consumes.
The marginal utility of pizza equals B0.5/2 P0.5. The marginal utility of a burrito equals
P0.5/2 B0.5. In equilibrium, the ratio of the marginal utilities will equal the ratio of prices. The ratio of marginal utilities simplifies to B/P. The ratio of prices is 10/5. Since we know that Lisa consumes 4 pizzas, she must consume 8 burritos.
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a. average fixed cost b. average variable cost c. marginal cost d. the market price
The problem the agent faces when deciding how to keep the agent motivated is called
a. Adverse selection b. Moral hazard c. Both of the above d. None of the above