Discourage twinkie consumption by raising the price

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Reference no: EM136315

Q. Each day Matt eats lunch at school. He likes only Twinkies (t) and soda (s), and these provide him a utility of Utility = U(t,s) = ts; with MUt = s and MUs = t

a) If Twinkies cost $.10 each and soda cost $.25 per cup, how should Matt spend the $1 his mother gives him in order to maximize his utility?

b) If the school tries to discourage Twinkie consumption by raising the price to $.40, by how much will Matt's mother have to increase his lunch allowance to provide him with the same level of utility he received in part (a)?

Reference no: EM136315

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