Only part B please. Thanks! 3. Suppose Paul, a 3rd grader, has the following utility function over his lunch of Twinkles(t) and soda (s),utility = U(t, s) = √√ts(a) If Twinkles cost $0.10 cach and soda costs $0.25 per can, how must Paul spendthe $1.00 from his parents in order to maximize his utility? (b) Now suppose the school tries to discourage Twinkle consumption by increasingthe price to $0.40, by how much will Paul's parents have to increase his lunchallowance in order for him to preserve his utility level in (a)? [i.c., compensatingvariation]

Answered: (b) Now suppose the school tries to…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics

Section20.1: Utility Theory

Problem 3ST

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Only part B please. Thanks!

3. Suppose Paul, a 3rd grader, has the following utility function over his lunch of Twinkles
(t) and soda (s),
utility = U(t, s) = √√ts
(a) If Twinkles cost $0.10 cach and soda costs $0.25 per can, how must Paul spend
the $1.00 from his parents in order to maximize his utility?

(b) Now suppose the school tries to discourage Twinkle consumption by increasing
the price to $0.40, by how much will Paul's parents have to increase his lunch
allowance in order for him to preserve his utility level in (a)? [i.c., compensating
variation]

Expert Solution

Step 1: Define utility function

A utility function is a concept in economics and decision theory that represents an individual's or a society's preferences and how they derive satisfaction, or utility, from consuming goods and services. Utility functions are used to model and analyze consumer choices, particularly in the context of how individuals make decisions about allocating their resources, such as money, time, or effort, to maximize their well-being or satisfaction.

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