4.1 Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of utility = U(t, s) = √ts. a. If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul spend the $1 his mother gives him to maximize his utility? b. If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?
4.1 Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of utility = U(t, s) = √ts. a. If Twinkies cost $0.10 each and soda costs $0.25 per cup, how should Paul spend the $1 his mother gives him to maximize his utility? b. If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.1P
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Transcribed Image Text:4.1
Each day Paul, who is in third grade, eats lunch at school. He
likes only Twinkies (t) and soda (s), and these provide him a
utility of
utility = U(t, s) = √ts.
a. If Twinkies cost $0.10 each and soda costs $0.25 per cup,
how should Paul spend the $1 his mother gives him to
maximize his utility?
b. If the school tries to discourage Twinkie consumption
by increasing the price to $0.40, by how much will Paul's
mother have to increase his lunch allowance to provide
him with the same level of utility he received in part (a)?
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