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Miles is an engineering student who uses all his income to buy instant coffee and food. Miles's utility function for instant coffee (X) and food consumption (Y) is given by U (x, y) = x^0.2y^0.8. If Miles's income is $10 and the price of instant coffee and food are $1 and $2 respectively, a) Explain what is the optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! b) If due to failure harvest of coffee crops, the price of coffee increases to $2, find the new optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! c) Illustrate in 1 diagram, the situation in point a & b

Miles is an engineering student who uses all his income to buy instant coffee and food. Miles's utility function for instant coffee (X) and food consumption (Y) is given by U (x, y) = x^0.2y^0.8. If Miles's income is $10 and the price of instant coffee and food are $1 and $2 respectively, a) Explain what is the optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! b) If due to failure harvest of coffee crops, the price of coffee increases to $2, find the new optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! c) Illustrate in 1 diagram, the situation in point a & b

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Miles is an engineering student who uses al his income to buy instant coffee and food. Miles's utility function for instant coffee (X) and food consumption (Y) is given by U (x, y) = x^0.2y^0.8. If Miles's income is $10 and the price of instant coffee and food are $1 and $2 respectively, a) Explain what is the optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! b) If due to failure harvest of coffee crops, the price of coffee increases to $2, find the new optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! c) Illustrate in 1 diagram, the situation in point a & b
Transcribed Image Text:Miles is an engineering student who uses al his income to buy instant coffee and food. Miles's utility function for instant coffee (X) and food consumption (Y) is given by U (x, y) = x^0.2y^0.8. If Miles's income is $10 and the price of instant coffee and food are $1 and $2 respectively, a) Explain what is the optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! b) If due to failure harvest of coffee crops, the price of coffee increases to $2, find the new optimal consumption bundle for instant coffee and food as well as Miles's total utility level from that bundle! c) Illustrate in 1 diagram, the situation in point a & b
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