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1. Your local coffee shop charges $0.50 per ounce of coffee, and you devote at most...

1. Your local coffee shop charges $0.50 per ounce of coffee, and you devote at most $15 per week for coffee. (a) (10 points) Graph your budget constraint.

(b) (5 points) What is the opportunity cost of coffee?

(c) (5 points) Your coffee shop has some left over holiday coffee that it wants to get rid of. It decides to charge $0.10 per ounce for coffee beyond 5 ounces. Graph your new budget constraint.

- What if, instead, the utility function is U=4T+2E.

  1. (a) (10 points) What is the marginal rate of substitution between toast and eggs?

  2. (b) (15 points) Using the same budget constraint as question 2, what is the utility maximizing bundle of toast and eggs?

(c) (10 points) If the price of toast increased to $0.50 per ounce, would the utility maximing bundle change? Explain why or why not.

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