Ernie and Bert, Inc. sells cookies (good x 1 ) and bananas (good x 2 ). They
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Question:
"Ernie and Bert, Inc." sells cookies (good x 1 ) and bananas (good x 2 ). They are offering the following deal to their customers. Although the price of bananas is fixed at 1 dollar per unit, the first three cookies that a consumer buys are free. After the third cookie, the price per cookie is also 1 dollar. Cookie Monster's preferences for both goods are represented by u(x 1 , x 2 ) = x 1 (x 2 + 3) and his income is 5 dollars.
- Draw Cookie Monster's budget line.
- Find his optimal consumption bundle.
Related Book For
Contemporary Labor Economics
ISBN: 978-1259290602
11th Edition
Authors: Campbell R. McConnell ,Stanley L. Brue,David Macpherson
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