II. Ms. Caffeine enjoys coffee (C) and tea (T) according to the function U(C, T) =...
II. Ms. Caffeine enjoys coffee (C) and tea (T) according to the function U(C, T) = 3C + 4T.
a. What does her utility function say about her MRS of coffee for tea? What do her indifference curves look like?
b. If coffee and tea cost $3 each and Ms. Caffeine has $12 to spend on these products, how much coffee and tea should she buy to maximize her utility?
c. Draw the graph of her indifference curve map and her budget constraint and show that the utility maximizing point occurs only on the T-axis where no coffee is bought.
d. Would this person buy any coffee if she had more money to spend? e. How would her consumption change if the price of coffee fell to $2?
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