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What share of your income do you spend on each good

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Reference no: EM131574912

Problem -

Imagine that you consume only two goods: bagels and coffee. Your utility function is characterized by U(QC, QB) = QC0.25QB0.75.

The price of bagels is $5 and the price of coffee is $2 and your income is $1,000.

a. Find out your initial consumption bundle and the utility it provides.

b. What share of your income do you spend on each good?

c. One day you wake up to the horrible news that the price of coffee increased to $3. What is your new optimal consumption bundle?

Reference no: EM131574912

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