Melissa likes beer and whisky and spends 7 5 in total on drinks. Her utility function
Question:
Melissa likes beer and whisky and spends in total on drinks. Her utility function for whisky w and beer b is U w b
She can buy beer at a can but the liquor store tries to discourage overconsumption of spirits by charging higher prices for larger quantities: the cost in dollars of w bottles of whisky works out at w
a How many cans of beer and how many bottles of whisky does Melissa consume?
b Illustrate your answer with a clearly labelled diagram showing Melissa's budget constraint and her indifference curve passing through the optimal consumption bundle.
c Melissa's friend Eve shops at the same liquor store and spends the same amount on drinks. Eve, however, insists on drinking beer and whisky together. Her utility function is U minwb
How much beer and whisky does Eve buy?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill