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In: Economics

Horatio consumes 20 fries and 12 shakes per week. The price of fries is $3 each...

Horatio consumes 20 fries and 12 shakes per week. The price of fries is $3 each and shakes are $5 each.
2.1 What is the amount of income allocated to shakes and fries consumption?
2.2 What is the price ratio (the price of shakes relative to the price of fries)?
2.3 If Horatio maximizes utility, what is the ratio of the marginal utility of shakes to the marginal utility of fries? (Hint: Start with the rule that you know and then use a bit of algebra.)
2.4 If the price of fries falls, will Horatio consume more fries, fewer fries, or the same amount of fries? Explain your answer using the rule of equal marginal utility per dollar, and include a rationale.

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Expert Solution

Rahul Sunny answered 1 year ago
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