Budget constraint-indifference curves-optimal consumption

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Reference no: EM13859493

Suppose a caffeine-deprived man needs to wake up. Suppose his preferences on a day can be described by U=3*coffee+2*tea. If the price of coffee is $4 and the price of tea is $1. He has $12 to spend on these drinks on a day.

A. Find his utility for the following consumption combinations:

3 coffee, 0 tea.

1 coffee, 3 tea.

2 coffee, 1.5 tea.

0 coffee, 4.5 tea.

0 coffee, 12 tea.

4 coffee, 6 tea.

8 coffee, 0 tea.

B. Show his budget constraint, indifference curves, and optimal consumption choice in a graph. Use the horizontal axis for coffee and vertical axis for tea.

C. How many cups of coffee does he drink? How many cups of tea? What is his utility?

Reference no: EM13859493

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