Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Casper consumes cocoa and cheese. Cocoa is sold in an
unusual
way.
There is only one supplier,
and the more cocoa you buy from him, the higher the price
you
have to pay per unit. In fact y units
of cocoa will cost Frank y2
Ł. Cheese is sold in the usual way at a price of 2Ł
per
unit.
Casper's
income is 30Ł and his utility function is U(x,y) = x^3 y^2
where x is her consumption of cheese and y
is his consumption of cocoa.
(a) Sketch Casper's budget set and shade it in.
(b) Sketch some of his indifference curves, compute and
label the point that he
chooses.
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