Suppose Paco has an annual entertainment budget of I. He spends his entertainment budget on only 2 goods: video games and movies. The price of a video game is Pv and the price of a movie is Pm. Paco’s utility function for video games (v) and movies (m) is: UU(vv, mm) = 4vv 1 2mm. a. Derive Paco’s demand functions for video games and movies as functions of only exogenous variables. b. Write Paco’s indirect utility function.

/in /by

Suppose Paco has an annual entertainment budget of I. He spends his entertainment budget on
only 2 goods: video games and movies. The price of a video game is Pv and the price of a movie
is Pm. Paco’s utility function for video games (v) and movies (m) is: UU(vv, mm) = 4vv
1
2mm.

a. Derive Paco’s demand functions for video games and movies as functions of only exogenous
variables.
b. Write Paco’s indirect utility function.

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