Exercise 2: Maximizing utility with perfect substitutes. (50 pts) Bill likes both Red Bull (x1) and...

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Exercise 2: Maximizing utility with perfect substitutes. (50 pts) Bill likes both Red Bull (x1) and...

Exercise 2: Maximizing utility with perfect substitutes. (50 pts)
Bill likes both Red Bull (x1) and Monster (x2) energy drinks. Both help him stay awake

to finish his microeconomics homework, so they’re perfect substitutes in that sense (though Monster cans are larger). His preferences over the drinks can be represented by utility function

U(x1, x2) = 5x1 + 4x2.

(b) What’s Bill’s optimal (x1, x2) choice given his preferences, income, and the prices of the two goods.

(c) What is the value of Bill’s utility at this utility maximizing choice?
(d) Monster is running a major promotion and is selling for $.50 a can. What is Bill’s

new consumption choice?
(e) What is the new value of Bill’s utility at this utility maximizing choice?

business economics

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İnce mp3 Or PI 0 5 Coruumed opimal 0. 5

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Exercise 2: Maximizing utility with perfect substitutes. (50 pts) Bill likes both Red Bull (x1) and...

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Consider an individual who considers x1 and x2 to be perfect substitutes at a rate of 2:1 i.e. he gets the same utility from consuming 2 units of x1 as he gets from consuming 1 unit of x2. Let his utility function be given as: U=x1+2x

Exercise 2: Maximizing utility with perfect substitutes. (50 pts) Bill likes both Red Bull (x1) and...

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Consider an individual who considers x1 and x2 to be perfect substitutes at a rate of 2:1 i.e. he gets the same utility from consuming 2 units of x1 as he gets from consuming 1 unit of x2. Let his utility function be given as: U=x1+2x

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Exercise 2: Maximizing utility with perfect substitutes. (50 pts) Bill likes both Red Bull (x1) and...