A consumer is always indifferent between 2 Cokes and 1 Pepsi. Write out this consumers utility...

A consumer is always indifferent between 2 Cokes and 1 Pepsi. Write out this consumers utility function.

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Expert Solution

He is indifferent between 2 Cokes and 1 Pepsi.

It means 1 pepsi gives him same utility as given by 2 cokes and they are perfect substitute. Therefore, Let C = Coke and P = Pepsi.

Then, utility function is given by:

U(C,P) = C + 2P

( Verification of function:

if he gets 2 cokes and 0 pepsi, then U(2,0) = 2

if he gets 1 pepsi and 0 coke, then U(0,1) = 2

Thus, he will be indifferent between 2 cokes and 1 pepsi with the given utility function).

Rahul Sunny answered 1 year ago

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