Derive cookie monsters demand for each good

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Reference no: EM13998894

Cookie Monster consumes Ores (good 2, price p2) and homemade chocolate chip cookies that he buys from his mom (good 1, price p1). His utility function is u(x1, x2)=ln(x1+x2)+x1. A back-story for these preferences might be that he cares about total calories which he needs to survive, and joy. oreos and chocolate chip cookies are perfect substitutes in providing calories-the x1+x2 term-but only homemade chocolate cookies give him joy (the second term). His income is Y.

a) Suppose p2<p1. Assuming an interior solution, derive Cookie Monsters demand for each good.

b) Determine whether each good is normal, inferior or Giffen

c) What would happen to solution in a) if oreos was more expensive?

Reference no: EM13998894

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