• The price of Coke (Pc) is $0.50/can. • The price of Pepsi (Pp) is $1.00/can. Based on his budget constraint and preferences, which of the following statements best describes Huang's utility maximizing choice of Coke and Pepsi? [Select ] What level of utility does he enjoy from this choice? [Select] () ◆
• The price of Coke (Pc) is $0.50/can. • The price of Pepsi (Pp) is $1.00/can. Based on his budget constraint and preferences, which of the following statements best describes Huang's utility maximizing choice of Coke and Pepsi? [Select ] What level of utility does he enjoy from this choice? [Select] () ◆
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the
bolded question below.
• Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function:
• 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.
U = 2C + 3P
Based on his budget constraint and preferences, which of the following statements best
describes Huang's utility maximizing choice of Coke and Pepsi? [Select]
What level of utility does he enjoy from this choice? [Select ]
()](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F314f0635-1dd9-4d26-9205-7f03c7b2e19c%2Fb7aed5c4-ce98-42aa-8aa7-b87a0ce15bfd%2F81ccmk_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Huang is determining how much Coke and Pepsi he will buy. Use the information in italics to answer the
bolded question below.
• Huang's preferences for Coke (C) and Pepsi (P) are represented by the following utility function:
• 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.
U = 2C + 3P
Based on his budget constraint and preferences, which of the following statements best
describes Huang's utility maximizing choice of Coke and Pepsi? [Select]
What level of utility does he enjoy from this choice? [Select ]
()
Expert Solution
Step 1
The utility preferences are perfect substitutes
MRS = (dU/dC)/ (dU/dP)
MRS = 2/3
relative price ratio = PC/PP = 0.5/1 = 1/2
under perfect substitute :-
If MRS > relative price ratio then
C = I / PC and P =0
MRS < relative price ratio then
C = 0 and. P = I / PP
Now here MRS > relative price ratio then
C = 12/0.5 = 24 and P = 0
So utility maximizing C = 24 and P=0
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