Reference no: EM132460854

Problem: Greta is a vegan who loves to make veggie burgers from assorted vegetables and beans. Greta's preferences for protein sources include Lentils (L) and Tofu (T), and are represented by the utility function U = 4L + 6T. Both L and T are measured in KG. Suppose that Greta has $50 to spend on food this week. The grocery store is advertising prices per kg of PL =$5 and PT =$14

(a) What is Greta's Marginal Rate of Substitution? What does this tell you about what kinds of goods Greta considers these to be?

(b) Draw a graph (with L on the horizontal axis, and T on the vertical axis). Draw in Greta's budget line, and Greta's optimal bundle (choice of quantities of L and T). Also draw the indifference curve that represents Greta's utility when choosing the optimal bundle. [ Draw your graph carefully and neatly. Make sure you label it properly. Think carefully about the shape of the indifference curve!].

(c) Greta is paying for food at the farmer's market when the wind picks up, blowing $8 from her hand. How did Greta's budget constraint change? Draw a new graph depicting the change, label the slope and intercepts of the budget constraint. 1

(d) If Greta has to choose a new optimal bundle after losing the $8, how would the mixture of the two goods he chooses change? Hint: how does the MU/$ spent change?