Question

Angela's fruit options at the convenience store are apples and bananas. Angela's utility function over apples, A, and bananas, B, is given by: U(A,B)=A+B a. Describe Angela's preferences over apples and bananas and explain her optimal decision rule b. What is the optimal bundle if price of apples is $1 a pound and the price of bananas is $2 a pound, and she has $100 a month to spend on apples and bananas. c. This convenience store is closing for a month and the closest grocery store where she will shop has apples for $3 a pound and bananas for 1 dollars a pound. How many pounds of apples and/or bananas will she buy from this store this month while the other store is closed? d. How much money would she be willing to give up of her fruit budget this month to have the convenience store not closed?

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Answer 1