Ethel Is Trying to Decide Whether to Have 0 Cars

question 23

Essay

Ethel is trying to decide whether to have 0 cars, 1 car, or 2 cars.If x is the number of cars she has and y is the amount of money she has per year to spend on other stuff, Ethel's utility function is U(x, y), where U(0, y)= y^1/2, U(1, y)=0 (15/14)y^1/2, and U(2, y)= (10/9)y^1/2.Suppose that it costs $2,000 a year to have 1 car and $4,000 a year to have 2 cars.Ethel finds that the right thing to do depends on her income.
a.What is her willingness to pay for 1 car if her income is M?
b.What is the lowest income at which she would have a car?
c.What is the lowest income at which she would have 2 cars?

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Definitions:

Subjective Impossibility

A situation where a party to a contract feels personally unable to perform their obligations, but the performance may still be possible by someone else.

Commercial Impracticability

A legal doctrine allowing parties to suspend or terminate their contractual obligations when unexpected events fundamentally alter the nature of the contract and performance becomes unfeasibly burdensome.

Substantial Performance

A concept in contract law where a party has completed enough of the contract to warrant payment, though some minor elements may still need to be finished.

Construction Industry

A sector of the economy focused on the planning, designing, and building of infrastructure and buildings.