Professor Petro considers coffee from La Prep (denoted as good !) and coffee from Tim Horton's (denoted as good h) to be perfect substitutes but he derives much more utility from La Prep coffee. In fact, he thinks 1 cup of coffee from La Prep is as good as 4 cups of coffee from Tim Hortons! This means his utility function over the two coffees is given by U=4l+h. The price of La Prep coffee is p = 3 and the price of Tim Horton's coffee is pa 1.5. Professor Petro sets aside a total income of m = 60 for coffee each week. For the questions below, treat La Prep coffee (good !) as the good that goes on the horizontal axis of an indifference curve diagram. (b) Solve for Professor Petro's optimal bundle of La Prep and Tim Horton's coffee, (, h"). Show your solution graphically by placing La Prep coffee on the horizontal axis and Tim Horton's coffee on the vertical axis. Label Professor Petro's optimal bundle as bundle "A" and be sure to label all intercepts of the budget line.

Professor Petro considers coffee from La Prep (denoted as good !) and coffee from Tim Horton's (denoted as good h) to be perfect substitutes but he derives much more utility from La Prep coffee. In fact, he thinks 1 cup of coffee from La Prep is as good as 4 cups of coffee from Tim Hortons! This means his utility function over the two coffees is given by U=4l+h. The price of La Prep coffee is p = 3 and the price of Tim Horton's coffee is pa 1.5. Professor Petro sets aside a total income of m = 60 for coffee each week. For the questions below, treat La Prep coffee (good !) as the good that goes on the horizontal axis of an indifference curve diagram. (b) Solve for Professor Petro's optimal bundle of La Prep and Tim Horton's coffee, (, h"). Show your solution graphically by placing La Prep coffee on the horizontal axis and Tim Horton's coffee on the vertical axis. Label Professor Petro's optimal bundle as bundle "A" and be sure to label all intercepts of the budget line.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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