What is his optimal consumption

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Reference no: EM13889315

David gets $3 per week to spend. He spends all the money on peanut butter and jelly sandwiches. PB costs 5 cents per ounce and jelly costs 10 cents per ounce. Bread is free. David uses exactly 2 ounces of PB for 1 ounce of jelly on each sandwich.

a. What is David's utility function?

b. What is his optimal consumption of PB and jelly?

c. Suppose the price of jelly rises to 15 cents per ounce. Now how much will David consume of each good?

d. How much more income will David need to restore him to his old utility?

e. Graph your results.

Reference no: EM13889315

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