Home » Exercise 3 (3 points) Every month, a family of three spends \$2,000 on food (F) and other items (O). The family’s preferences are represented by the…

# Exercise 3 (3 points) Every month, a family of three spends \$2,000 on food (F) and other items (O). The family’s preferences are represented by the…

Exercise 3 (3 points) Every month, a family of three spends \$2,000 on food (F) and other items (O). The family’s preferences are represented by the utility function U(F,O) = F1/5O4/5. The unit price of food and the unit price of other items are both \$1.a) Find this family’s monthly food expenditure. (1/2 point)The family could join a consumers’ club. At the club, food costs 20% less than in other stores (i.e., at the food club PF = \$0.8).b) Suppose the club did NOT charge a membership fee: how much money would the family spend on food? How much food would the family buy? (1/2 point)c) Would the family be willing to pay more than \$80 to join the consumers’ club? Clearly justify your answer. (1 point)

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