Resulting tangency condition under this price paradigm

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Suppose Danielle consumes pancakes and waffles. Her utility function can be expressed as U(P,W)=10P^.75 W^.5. Furthermore, suppose the price of pancakes is $4.00 and the price of waffles is $2.50.

–Define Danielle’s marginal rate of substitution for PW and the resulting tangency condition under this price paradigm.

–If Danielle’s income is $200.00 and she only buys waffles and/or pancakes, what is her optimal bundle?

–Suppose Danielle moves from Cincinnati to New York City and the price of waffles increases by $1.50. What is the new optimal bundle? Calculate the new income that would be necessary to make Danielle equally happy in both NYC and Cincinnati.

–Sketch the graph.

Reference no: EM131379967

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