Casper consumes cocoa and cheese. Cocoa is sold in an unusual way. There is only

Question

Casper consumes cocoa and cheese. Cocoa is sold in an unusual way. There is only one supplier, and the more cocoa you buy from him, the higher the price you have to pay per unit. In fact x2 units of cocoa will cost Casper dollars. Cheese is sold in the usual way at a price of $2 per unit. Casper's income is $40 and his utility function is u(x1, x2) = x1 + 2x2, where x1 is his consumption of cheese and x2 is his consumption of cocoa. Sketch Casper's budget set. Sketch some of his indifference curves and label the point that he chooses Calculate the amount of cheese and the amount of cocoa that Casper demands at these prices and this income

Explanation / Answer

We have to calculate the maximum amount of cheese and cocoa that Casper within his budget contraint of $40.

The maximum amount of cheese that Casper can demand = 4.875 units

The maximum amount of cocoa that Casper can demand = 5.5 units

Constraint = 4.875 x 2 + 5.5^2 = $40.

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