Question

Nicolas and Prachi participate in an economy that is in competitive equilibrium. Although they are unacquainted with each other, both purchase strawberries and champagne. Nicolas’s utility function is U(s, c) = 2s + c, where s is the number of boxes of strawberries he consumes per month and c is the number of bottles of champagne. Prachi’s utility function is U(s, c) = s.c

a. Prachi consumes equal amounts of strawberries and champagne.
b. Nicolas consumes more strawberries than champagne.
c. Prachi consumes twice as many bottles of champagne as boxes of strawberries.
d. Prachi consumes twice as many boxes of strawberries as bottles of champagne.
e. Nicolas consumes more champagne than strawberries.

Answer 1

Nicolas's utility function suggests he may consume more strawberries than champagne, while Prachi may consume equal amounts of strawberries and champagne.

Step-by-step explanation:

In this scenario, Nicolas and Prachi have different utility functions, which represent their preferences for consuming strawberries and champagne. Nicolas's utility function is U(s, c) = 2s + c, where s is the number of boxes of strawberries and c is the number of bottles of champagne. Prachi's utility function is U(s, c) = s.c.

To determine how much of each good they will consume, we need their budget constraint and the prices of strawberries and champagne. Without that information, we cannot determine the specific answers to options a, b, c, d, and e. However, we can analyze their utility functions to gain insights into their consumption patterns.

Based on Nicolas's utility function, he derives more utility from strawberries (2s) compared to champagne (c). This suggests that Nicolas may consume more strawberries than champagne. On the other hand, Prachi's utility function indicates that she derives more utility from consuming an equal amount of strawberries and champagne (s.c). Therefore, it is likely that Prachi consumes equal amounts of strawberries and champagne.