Steve's utility function is U = BC, where B = veggie burgers per

week and C = packs of cigarettes per week. Here, MUB = C and MUC = B. What is his

marginal rate of substitution if veggie burgers are on the vertical axis and cigarettes are on

the horizontal axis? Steve's income is $120, the price of a veggie burger is $2, and that of

a pack of cigarettes is $1. How many burgers and how many packs of cigarettes does Steve

consume to maximize his utility? When a new tax raises the price of a burger to $3, what

is his new optimal bundle? Illustrate your answers in a graph. In a related graph, show

his demand curve for burgers with the after-tax price on the vertical axis and show the

points on the demand curve corresponding to the before- and after-tax equilibria. (Hint:

See Appendix 4B.)