Suppose that Jane has a special preference for beef noodles…
Suppose that Jane has a special preference for beef noodles (b) and popcorn chicken (c). She spends all her income on popcorn chicken and beef noodles and her utility preference is given by U(c;b)=min(2c; b). If her income is $16 and the price for a cup of beef 𝑃𝑏noodles is $2 and one box of popcorn chicken 𝑃𝑐 is $1. Solve for the optimal consumption bundle.
What if the price of beef noodles increases to $3? Solve for the optimal consumption bundle.
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Technifi Expert’s Answer:
income = 16$
cup of beef noodles = $2
one box of popcorn chicken = $1
budget constrainst equation => 2b+c=16
as per utility preference 2c* = b*
substituting in budget constraint equation
16 = 2(2c*) + c*
= 3.2 = 4 approx
b* = 2c*
= 2 x 4
optimal consumption bundle is 8 cups of beef noodles and 4 box of popcorn chicken.
If the price of beef noodles increases to $3 then the new budget equation => 3b+c=16
3(2c*) + c* = 16
c* = 16/7
= 2.28 = 3 approx
b*= 2 X 3
New optimal consumption bundle is 6 cups of beef noodles and 3 box of popcorn chicken.
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