Question

4. Jane lives in a dormitory that offers soft drinks and chips for sale in vending machines. Her utility function is U 3SC (where S is the number of soft drinks per week and C marginal utility of C is 3S. Soft drinks are priced at S0.50 each, chips SO0.25 per bag. a. Determine the marginal rate of substitution between soft drinks and chips. the number of bags of chips per week), so her marginal utility of S is 3C and her b. Determine Jane's optimal mix of soft drinks and chips. c. If Janc has S5.00 per week to spend on chips and soft drinks, determine many of each should she purchase per week?

Answer 1

a. Sol-

MRS_sc=MU_s/MU_c =3c/3s =c/s

b. Sol- optimal mix of soft drinks and chips ;

MU_s/MU_c=P_s/P_c

_{C/s =0.5/.25}

_C:S=2:1

_{C-sol- optimal combination 2:1}

_{Its price =2×0.25+1×0.50=$1}

_{So half-half is spent over both the goods}

_{So optimal bag is here ,}

_{C=10 and S=5}

_{Budget equation, PsQs+PcQc=5}

_{0.5×5+0.25×10=5 satisfied.}