1.Peter consumes only milk (M) and cereal (C). He always combines 1 quart of milk with 2 (small) cartons of cereal. Peter's income is $120. The price of milk is $1/quart and the price of cereal is $1/carton.

a.Write down a utility function that represents Peter's preferences.

b.Assuming that Peter is maximizing his utility, how many quarts of milk and cartons of cereal will he consume.

c.Now assume that the price of cereal increases to $2/carton. What is Peter's new optimal consumption bundle?

d. By how much would Peter's income have to increase with the higher price for cereal to return him to the level of utility he had in part (b)?