Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of

      

  

a. If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul spend the $1 his mother gives him to   maximize his utility?

b. If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul’s mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?
 

Transcribed Image Text:

utility = U(t, s) = Vts. utility = U(t, s) = Vts.

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