4.1 Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of utility = U(t, s) = √ts. a. If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul spend the $1 his mother gives him to maximize his utility? b. If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?

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4.1
Each day Paul, who is in third grade, eats lunch at school. He
likes only Twinkies (t) and soda (s), and these provide him a
utility of
utility = U(t, s) = √ts.
a. If Twinkies cost $0.10 each and soda costs $0.25 per cup,
how should Paul spend the $1 his mother gives him to
maximize his utility?
b. If the school tries to discourage Twinkie consumption
by increasing the price to $0.40, by how much will Paul's
mother have to increase his lunch allowance to provide
him with the same level of utility he received in part (a)?
Transcribed Image Text:4.1 Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of utility = U(t, s) = √ts. a. If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul spend the $1 his mother gives him to maximize his utility? b. If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?
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