7)John likes books and restaurant meals. His utility function is: u (Xb, Xm) =(Xb) (Xm) where Xb represents the quantity of books that John consumes
7)John likes books and restaurant meals. His utility function is: u (Xb, Xm) =(Xb) (Xm) where Xb represents the quantity of books that John "consumes" in a month, and Xm the amount of restaurant meals that he consumes. Suppose that both books and restaurant meals are perfectly divisible goods. The relative price of books in terms of restaurant meals is 0.4, i.e., buying a book costs 40% of the price of a restaurant meal. The nominal price of a restaurant meal is $40. John's income is $1.000 per month. Compute the quantity of books and restaurant meals that John consumes in a month. [15 marks]
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