Minnie gets 4 tapes for her birthday, but they are currently useless to her because she doesn't have a tape recorder and she cannot return them for a refund.Her utility function is U(x, y, z)= x + f(y)z⁵, where z is the number of tapes she has, y is the number of tape recorders she has, and x is the money she has to spend on other stuff.Let f(y)= 0 if y

Question

Minnie gets 4 tapes for her birthday, but they are currently useless to her because she doesn't have a tape recorder and she cannot return them for a refund.Her utility function is U(x, y, z)= x + f(y)z⁵, where z is the number of tapes she has, y is the number of tape recorders she has, and x is the money she has to spend on other stuff.Let f(y)= 0 if y < 1 and f(y)= 7 otherwise.The price of tapes is $7.99.What is her reservation price for a tape recorder? A)$20 B)$7 C)$24 D)$0 E)None of the above.

Quizplus · Accepted Answer

The reservation price for a tape recorder is not directly given by the utility function or the information provided. The utility function shows that tapes (z) only add to Minnie's utility if she has a tape recorder (y > 0), with f(y) changing from 0 to 7 when she acquires a tape recorder. However, the price of tapes or the utility function does not directly provide a reservation price for the tape recorder itself. The reservation price would be the maximum amount Minnie is willing to pay for a tape recorder, considering it would make her tapes useful, but this cannot be determined with the given information.

Minnie Gets 4 Tapes for Her Birthday, but They Are