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Ms. Caffeine enjoys coffee (C) and tea (T) according to the function U(C,T) = 2C +...

Ms. Caffeine enjoys coffee (C) and tea (T) according to the function U(C,T) = 2C + 3T.

a. What is her marginal rate of substitution of coffee for tea?

b. Do her indifference curves meet all the classic properties of indifference curves? Explain and give the implications of your answer.

Assume her friend Josh only spends his discretionary money ($210) on chocolate truffles (priced at $7 a box) and comic books (p=$3 per comic book). His utility function is of the Cobb-Douglas form with ?=0.5 and ?=0.5

a. What is Josh’s maximization problem? Please write it out in mathematical form, and solve for his optimal consumption bundle.

b. What will happen to Josh’s optimal consumption bundle if the price of chocolate truffles plummets down to $3 per box? Solve mathematically and discuss the intuition behind the change.

c. What is the marginal rate of substitution between chocolate truffles and comic books for Josh

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