Our old friend, Edmund Stench, of Chapter 2 loves punk rock video tapes. He has no income and therefore has to accept garbage in his backyard in return for money. Each video tape cost $2 and each sack of garbage that he accepts brings him $1. His utility function is given by U(c, g) = min{ 2c, 20 - g}, where c is the number of video tapes and g is the number of sacks of garbage that he gets per month. Each month he will choose to accept

Question

Quizplus · Accepted Answer

To determine the best choice for Edmund, we need to compare the utility he would receive from each option.

A) Accepting 20 sacks of garbage would give him a total of $20, but it would also reduce his utility to U(c, g) = min{ 2c, 20 - 20} = 0. This means that he would not be able to purchase any video tapes and would feel very dissatisfied.

B) Accepting no garbage would give him $0, and he would have to forgo his beloved punk rock video tapes, giving him a utility of U(c, g) = min{ 2*0, 20 - 0} = 0.

C) Accepting 5 sacks of garbage would give him $5, and he would be able to purchase 2 video tapes (c = 2). However, his remaining utility would be U(c, g) = min{ 2*2, 20 - 5} = 4, since he doesn't necessarily enjoy having a lot of garbage around.

D) Accepting 10 sacks of garbage would give him $10, and he would be able to purchase 5 video tapes (c = 5). His remaining utility would be U(c, g) = min{ 2*5, 20 - 10} = 10. This is the highest utility of all options.

E) Accepting 15 sacks of garbage would give him $15, and he would be able to purchase 7 video tapes (c = 7). However, he would only have U(c, g) = min{ 2*7, 20 - 15} = 10 utility, just like the previous option with less garbage.

Therefore, the best choice for Edmund is to accept 10 sacks of garbage per month.

Our Old Friend, Edmund Stench, of Chapter 2 Loves Punk