Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis) a) Devise a utility function to represent these preferences. b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the budget constraint. c) Solve Tony's utility maximization problem and find the optimal combination.

Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis) a) Devise a utility function to represent these preferences. b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the budget constraint. c) Solve Tony's utility maximization problem and find the optimal combination.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

3. Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka
has three times the alcohol as a six-pack of beer. Assume that Tony only cares about the total amount of
alcohol in his basket. (use vodka on the X-axis and beer measured in six-pack on the Y-axis)
a) Devise a utility function to represent these preferences.
b) Suppose a bottle of vodka costs $40, a six-pack of beer costs $10, and the budget is $200. Write the
budget constraint.
c) Solve Tony's utility maximization problem and find the optimal combination.
d) Suppose that a bottle of vodka cost has increased to $50. What will be his new optimal combination?

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