Economics w10 $5.00
October 10, 2020
When people go into business they must consider several economic aspects, including cost factors. We’ve seen how a firm could be earning an…
October 10, 2020
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Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more.

Homer consumes only donuts and beer. When he consumes less than 10 beers, Homer would gladly drink one more. After drinking 10 beers, Homer is so drunk that he does not notice any additional bottle he drinks (that is, the benefit of an additional bottle of beer is zero). Drinking more than 17 beers is beyond the processing capability of Homer’s liver and any additional bottle makes him sick (beer is no longer a “good” for Homer). Homer’s preferences for donuts are similar. As long as he eats less than 15 donuts, an additional donut increases his utility. If he eats between 15 and 20 donuts, then additional donuts do not bring him any additional utility, and if he eats more than 20 donuts, then additional donuts make him worse off.

  1. Sketch Homer’s indifference curve passing through point (8 donuts, 8 beers).
  2. Sketch Homer’s indifference curve passing through point (16 donuts, 16 beers)

 

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