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Question 5 Pedro's utility function is U(a, b) =a+10b-b², where a is the amount of apples consumed and b is the amount of bananas consumed. He has $100 income. The price of apple is $0.5 per lb. Price of banana's though increases with its purchase. Specifically, buying, b pounds of bananas will cost Pedro b². a. What is Pedro's optimal consumption? b. Now, he suddenly acquires an extra $100 income. How this will change his allocation?

Question 5 Pedro's utility function is U(a, b) =a+10b-b², where a is the amount of apples consumed and b is the amount of bananas consumed. He has $100 income. The price of apple is $0.5 per lb. Price of banana's though increases with its purchase. Specifically, buying, b pounds of bananas will cost Pedro b². a. What is Pedro's optimal consumption? b. Now, he suddenly acquires an extra $100 income. How this will change his allocation?

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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Question 5 Pedro's utility function is U(a, b) = a +10b-b², where a is the amount of apples consumed and b is the amount of bananas consumed. He has $100 income. The price of apple is $0.5 per lb. Price of banana's though increases with its purchase. Specifically, buying, b pounds of bananas will cost Pedro 6². a. What is Pedro's optimal consumption? b. Now, he suddenly acquires an extra $100 income. How this will change his allocation?
Transcribed Image Text:Question 5 Pedro's utility function is U(a, b) = a +10b-b², where a is the amount of apples consumed and b is the amount of bananas consumed. He has $100 income. The price of apple is $0.5 per lb. Price of banana's though increases with its purchase. Specifically, buying, b pounds of bananas will cost Pedro 6². a. What is Pedro's optimal consumption? b. Now, he suddenly acquires an extra $100 income. How this will change his allocation?
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