Alice receives an allowance of 500 dollars that she spends on buying snacks (S) and tea (T). The price of each snack is 10 dollars and the price of each tea is 5 dollars. Her utility is given by: U (S, T) = 2S³/4 +T3/4 (a) Find her marginal rate of substitution (MRS) between S and T. (b) Write Alice's budget constraint. (c) Find Alice's optimal consumption and the optimal A.

Economics (MindTap Course List)
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ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics
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Alice receives an allowance of 500 dollars that she spends on buying snacks (S) and tea
(T). The price of each snack is 10 dollars and the price of each tea is 5 dollars. Her utility
is given by:
U (S, T) = 2S³/4 +T3/4
(a) Find her marginal rate of substitution (MRS) between S and T.
(b) Write Alice's budget constraint.
(c) Find Alice's optimal consumption and the optimal A.
(d) What is her new consumption if the price of tea becomes 10 dollars?
Note: numeric solutions for questions (c) and (d) are not integers.
Transcribed Image Text:Alice receives an allowance of 500 dollars that she spends on buying snacks (S) and tea (T). The price of each snack is 10 dollars and the price of each tea is 5 dollars. Her utility is given by: U (S, T) = 2S³/4 +T3/4 (a) Find her marginal rate of substitution (MRS) between S and T. (b) Write Alice's budget constraint. (c) Find Alice's optimal consumption and the optimal A. (d) What is her new consumption if the price of tea becomes 10 dollars? Note: numeric solutions for questions (c) and (d) are not integers.
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