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Suppose a person has $8 to spend only on apples and bananas. Apples cost $0:4 each, and bananas cost $0:1 each. Furthermore, his preferences for apples (A) and bananas (B) can be represented by U = √AB
a) If A = 5 and B = 80, what will utility be?
b) If A = 10, what value of for B will provide the same utility in part a?
c) If A = 20, what value of for B will provide the same utility in parts a and b?
d) Graph the indi⁄erence curve implied by parts a through c.
e) Give the budget constraint, which of the points identied in parts a through c can be bought by this person?
f) Show through some examples that every other way of allocating income provides less utility than does the point identied in part b. graph this utility maximizing situation.
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