Casper consumes cocoa and cheese. Cocoa is sold in an unusual way. There is only one supplier, and the more cocoa you buy from him, the higher the price you have to pay per unit. In fact y units of cocoa will cost Casper y² dollars (i.e. the price of y units is y dollars, hence the quadratic cost). Cheese is sold in the usual way at a price of 2 dollars per unit. Casper's income is 20 dollars and his utility function is U(x, y) = x+2y, where x is his consumption of cheese and y is his consumption of cocoa. a. Sketch Casper's budget set and shade it in. b. Sketch some of his indifference curves and label the optimal bundle that he chooses. c. Calculate the amount of cheese and the amount of cocoa that Casper demands at these prices and this income, i.e. calculate the optimal bundle. (Recall that you can find the slope of any curve using the Total Differential, i.e. the MRS formula works in general)

Casper consumes cocoa and cheese. Cocoa is sold in an unusual way. There is only one supplier, and the more cocoa you buy from him, the higher the price you have to pay per unit. In fact y units of cocoa will cost Casper y² dollars (i.e. the price of y units is y dollars, hence the quadratic cost). Cheese is sold in the usual way at a price of 2 dollars per unit. Casper's income is 20 dollars and his utility function is U(x, y) = x+2y, where x is his consumption of cheese and y is his consumption of cocoa. a. Sketch Casper's budget set and shade it in. b. Sketch some of his indifference curves and label the optimal bundle that he chooses. c. Calculate the amount of cheese and the amount of cocoa that Casper demands at these prices and this income, i.e. calculate the optimal bundle. (Recall that you can find the slope of any curve using the Total Differential, i.e. the MRS formula works in general)

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information

Section17.2: Internalizing Externalities

Problem 2ST

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