Constrained Consumer Choice: Max loves guava and chicken, where G and C denote the gallons and pounds of guava and chicken that Max consumes. Max receives a generous weekly income, Y=$500, from his Great Aunt Mitzie. The price of a gallon of guava (????????) is $10 and the price of a pound of chicken (????????) is $5. Max has preferences that can be described by the quasilinear utility function: ????(????, ????) = 20????^1/2 + ????. Use this information to answer the following questions.

a. Set up Max’s constrained utility maximization problem. Be sure to identify what he is maximizing and what is his constraint.

b. Using his budget constraint, write an equation for the amount of chicken Max buys in terms of the number of guava he purchases. Given this write Max’s utility purely as a function of the number of guava he chooses to consume

c. Using your set-up from part (b), find the quantities of guava and chicken Max will chose to purchase, that is his utility maximizing bundle of guava and chicken. (Hint! You might want to do this symbolically, i.e., without plugging in numbers for income until the end, so you can use the same calculation for part (e). Be sure to show your work for full credit!)

d. How much utility does Max get from consuming his utility maximizing bundle of goods?

e. Now imagine that Great Aunt Mitzie thinks that Max can be motivated to find a paying job only if she cuts his weekly income to $400. How would Max’s consumption choices change? What happens to his utility level?

Answer rating: 100% (QA)

Step 15 Utility Function UG C 20G C G is gallons of gauva C is pounds of Chicken Budget constraint 5... View the full answer