Question

Your utility from your health diet of (Pop Tarts = T and Nachos = N). The...

  1. Your utility from your health diet of (Pop Tarts = T and Nachos = N). The following is your utility function for these two goods.

U = 4T0.5 + N0.5                   You have $135 to spend per week for these two goods, T = $5 and N = $2.50

  1. Determine the consumption bundle that maximizes your utility. Show your main steps (every math step isn’t need but make sure I can follow how you got there).  
  2. Graph this outcome with an indifference curve and budget constraint.
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Homework Answers

Answer #1

a.

The optimal bundle occurs at when slope of the indifference curve (also known as the Marginal rate of Substitution) equals the slope of budget constraint.

After solving you get optimal bundle equals T= 24 and

N =6

The working is shown in the image below.

Hope this helps. Cheers!

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