Nadia likes spare ribs, R, and fried chicken, C. Her utility function is U = 10R2C. Her marginal utilities are MUR = 20RC and MUC = 10R2. Her weekly income is $ 90, which she spends on only ribs and chicken.
a. If she pays $ 10 for a slab of ribs and $ 5 for a chicken, what is her optimal consumption bundle? Show her budget line, indifference curve, and optimal bundle, e1, in a diagram.
b. Suppose the price of chicken doubles to $ 10. How does her optimal consumption of chicken and ribs change? Show her new budget line and optimal bundle, e2, in your diagram.

  • CreatedNovember 13, 2014
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