Braden views Coke (C) and Pepsi (S) as perfect substitutes. His utility function is: U =...

Braden views Coke (C) and Pepsi (S) as perfect substitutes. His utility function is: U = C + S. The corresponding marginal utility for each good is: MU_C = 1 and MU_S = 1. The price of a 12-ounce can of Coke is $4 and the price of a 12-ounce can of Pepsi is $3. Also, assume that his income is $60.

Find Branden's utility-maximizing bundle of Coke and Pepsi. Make sure to show all your work.
Show his optimal consumption bundle on a graph (Pepsi (S) on the vertical axis and Coke (C) on the horizontal axis). Label it "e₁". Make sure to include the values for the vertical and horizontal intercepts corresponding to the budget line. Make sure to clearly label each curve.
Now suppose that the price of Coke decreases to $3 while the price of Pepsi remains at $3. Show his new optimal consumption bundle on the graph you drew in part a). Label this point "e₂".
Now suppose that the price of Coke decreases again to $1 while the price of Pepsi remains at $3. Show his new optimal consumption bundle on the graph you drew in part a). Label this point "e₃".
Based on the indifference curve-budget constraint map you drew in part c), draw the corresponding individual demand curve for Coke. Please make sure to indicate at each point the price per unit for Coke and the corresponding quantity of Coke demanded (P_C on the vertical axis and Coke on the horizontal axis).

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Expert Solution

Rahul Sunny answered 8 months ago

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