Alice consumes bread and cheese. Bread is sold in an unusual way, x1 units of Bread will cost Alice x2 dollars. Cheese is sold in a usual way at a price of $1 per unit. Her income is $25 and his utility function is u(x1 , x2 ) = 2x1 + x2 , where x1 is his consumption of bread and x2 is his consumption of cheese.

1. Write the equation for Alices burget set and then sketch it

2. Compute the marginal utilities for each good and then the MRS. Explain the meaning of these numbers.

3. Sketch some of the indifference curves

4. Calculate the amount of cheese and the amount of Bread that Alice demands at these prices

   and this income (Hint: you can use substitution or Lagrangian method)

Now consider that the price of good one is given by (x^2)1. Answer the four previous questions for this case.

Answer rating: 100% (QA)

Alices Consumption Problem 1 Budget Constraint Alice has an income of 25 and she spends it on bread and cheese Letting pb be the price of bread per un... View the full answer