2) Optimal choice: example #2 Emi's friend Xindi also likes tacos, but she doesn't like sandwiches. Instead, she always consumes exactly two tacos (good x) with one glass of horchata (y), and she doesn't enjoy either good without the other. Suppose prices are the same as initially in problem 1, so that horchata is twice as expensive as tacos (Px=$2, Py=$4), and Xindi has the same budget as Emi: I=$24 a) Propose a utility function that is consistent with these preferences and draw a couple of its isoquants. b) Solve Xindi's long run utility maximization to find the basket of goods she will purchase. c) What if, just as in problem 1, the good on the x axis goes on sale for $1/ unit?

2) Optimal choice: example #2 Emi's friend Xindi also likes tacos, but she doesn't like sandwiches. Instead, she always consumes exactly two tacos (good x) with one glass of horchata (y), and she doesn't enjoy either good without the other. Suppose prices are the same as initially in problem 1, so that horchata is twice as expensive as tacos (Px=$2, Py=$4), and Xindi has the same budget as Emi: I=$24 a) Propose a utility function that is consistent with these preferences and draw a couple of its isoquants. b) Solve Xindi's long run utility maximization to find the basket of goods she will purchase. c) What if, just as in problem 1, the good on the x axis goes on sale for $1/ unit?

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter6: Consumer Choice And Demand

Section: Chapter Questions

Problem 6QFR

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Consider the utility function U(x,y) = xy, which describes the enjoyment Emi gets from consuming tacos (x) and sandwiches (y) over a period of 1 week. a) Does Emi like both tacos and sandwiches? Does she like variety? b) Let Emi have budget I=$24, and let prices be Px=$2, Py=$4. Find Emi's optimal basket of goods x and y. Is this an interior or a corner solution? c) What will happen if tacos (good x) go on sale for $1? Find the new optimal bundle.
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