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 lower the price you have to pay per unit. In fact, x2x2 units of cocoa will cost Casper √x2x2 dollars. Cheese is sold in the usual way at a price of $2 per unit
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 lower the price you have to pay per unit. In fact, x2x2 units of cocoa will cost Casper √x2x2 dollars. Cheese is sold in the usual way at a price of $2 per unit. Casper's income is $10 and his utility function is u(x1,x2)=x21x2u(x1,x2)=x12x2, where x1x1 is his consumption of cheese and x2x2 is his consumption of cocoa.
(1) Sketch Casper's budget set.
(2) Sketch some of his indifference
(3) Calculate the amount of cheese and the amount of cocoa that Casper demands at these prices and this income. Do not forget to check the corners. (Hint: Write down the Lagrangean for this problem and solve the maximization program
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