Need solution and EXPLANATION. 5 stars for step by step solution Each day Paul,

Question

Need solution and EXPLANATION. 5 stars for step by step solution

Each day Paul, who is in third grade, eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of

utility = U(t,s) = sqrt{ts}

A) If twinkies cost $0.10 each and soda costs $0.25 per cup, how should paul spend the $1 his mother gives him to maximize his utility?

B) If the school tries to discourage Twinkie consumption by increasing the price to $0.40, by how much will Paul's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (A)?

Explanation / Answer

for maximum utility he must buy either 1,2,3,4 soda cups if 1 soda cup the money left = 1 - 0.25 = $0.75 so left money = $0.75 So, even if he takes 7 twinkies then also 0.75 - 7*0.1 = $0.05 will be left So this is not accepted if 3 soda cup the money left = 1 - 0.75 = $0.25 so left money = $0.25 So, even if he takes 2 twinkies then also 0.25 - 2*0.1 = $0.05 will be left So this is not accepted if 2 soda cup the money left = 1 - 0.5 = $0.5 so left money = $0.5 So, even if he takes 5 twinkies then also 0.5 - 5*0.1 = $0 will be left So this is will be the maximum utility consumption So, 2 soda cups and 5 twinkies is the consumption at maximum utility If price of twinkies = $0.4 The total cost = 0.4*5 + 0.25*2 = $2.5 This should be his allowance to maintain same level of utility

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.