Question

In: Economics

Will Smith consumes chocolate and milk. Let y denote chocolate and x denote milk. Chocolate has...

Will Smith consumes chocolate and milk. Let y denote chocolate and x denote milk. Chocolate has an unusual market where there is only one supplier, and the more chocolate you buy from the supplier, the higher the price she charges per unit. In fact, y units of chocolate will cost Will y2 dollars. Milk is sold in the usual way at a price of 2 dollars per unit. Will’s income is 20 dollars and his utility function is U = x + 2y. Draw Will’s budget set and shade it in. Sketch some of his indifference curves and label the point that he chooses. Calculate the amount of milk and the amount of chocolate that Will demands given these prices and this income.

Solutions

Expert Solution

Shade all area under line 2 on graph for budget set


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