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Cesar earns $60/week while attending UIC and consumes two goods: Beer (B) and Food (F). Beer costs $1/can and Food costs $3/lb. Cesar has the utility function U(B,F) = 2BF (with B in cans, F in lbs). This means his marginal utility from consuming beer is 2F and the marginal utility of consuming food is 2B.

1. How many lbs of food (F) will Cesar purchase each week?

2. The price of food drops to $1/lb. How much food does Cesar now consume each week?

3. What is his utility each week from consuming his utility maximizing bundle of B and F?

4. What is the size of the substitution effect in Question 3, going from $3/lb to $1/lb, in lbs of food?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M91227526

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