Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer thebolded question below.• Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function:U = 2C + 3P• Huang has $12 to spend on soft drinks.• The price of Coke (P) is $0.50/can.• The price of Pepsi (Pp) is $1.00/can.Based on his income and prices of either good, what is the most Huang could buy of eithersoft drink?1. Maximum amount of Pepsi [Select]II. Maximum amount of Coke [Select]<>

Answered: Based on his income and prices of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A consumer always maximizes his/her utility given his/her budget constraint where the slope of the indifference curve is equal to the slope of the budget constraint. Mathematically,

$\frac{M U x}{M U y} = \frac{P x}{P y}$

Here, in this question, they ask the maximum amount of the softdrink Huang can buy given the prices and income. The vertical intercept of the budget line shows the maximum amount of the good the consumer can buy (the good measured on the vertical axis). Similarly, the horizontal axis shows the maximum amount of the good measured on the horizontal axis that the consumer can buy. This is because the quantity of the other good is zero on that respective axis.

Budget Equation:

(P_c)(C) + (P_p)(P) = Income

(P_c)(C) + (P_p)(P) = 12

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