Suppose Joe's utility for lobster (L) and soda (S) can be represented as U = L0.5 S0.5. Joe walks into a restaurant with $72. Lobsters cost $18 each and sodas cost $2 each. How much lobster and soda will Joe consume if he intends to spend all his money? (There are no tax and no tips.)
31) Suppose Joe's utility for lobster (L) and soda (S) can be represented as U = L0.5 S0.5. Joe walks into a restaurant with $72. Lobsters cost $18 each and sodas cost $2 each. How much lobster and soda will Joe consume if he intends to spend all his money? (There are no tax and no tips.)
1). dU/dL = 0.5 L-0.5 S0.5 - 18q = 0
2). dU/dL = 0.5 L0.5 S-0.5 - 2q = 0
3). dU/dq = 72 - 18L - 2S = 0
32) Joe's indifference map for lobster and soda is shown in the above figure along with his budget line. Will Joe choose point a? Explain your answer in terms both of MRS and the level of utility.
33) John is indifferent between canned soup and fresh soup. Canned soup sells for $1 per serving and fresh soup sells for $2 per serving. Assuming that John has allocated $4 toward soup, how will he spend it? Explain your answer by drawing John's budget line and indifference
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