1. Andrew is going to Chicago for the day to watch his favorite baseball team (Cubs). Andrew loves his Cubs, but he is addicted to drinking beer (B) and eating hotdogs (D) while watching his team. His utility function is:

U = (B*D)^1/2

a. Suppose Andrew has $50 to spend on beer and hotdogs. Beer costs $5 a mug and a hotdog costs $4. Draw Andrew's budget constraint.

b. Suppose Andrew spends all of his income on beer. How many mugs of beer can he buy? What is his utility?

c. Will Andrew's income allow him to reach a U = 5?

d. If Andrew buys 4 hotdogs, how many mugs of bear can he buy? What is his utility?

e. What is the combination of beer and hotdogs that yield the highest utility?

2. Firm A's Price

$20 $15

$20 $40 profit $35 profit

Firm B's Price $37 profit $39 profit

$15 $49 profit $38 profit

$30 profit $35 profit

1. Firms A and B are member of an oligopoly. Which solution will Firm A and B select?
2. Is there a Nash equilibrium? If so, what is it?
3. Which solution will Firm A and B select if Firm A moves first and Firm B moves second?
4. Which solution will Firm A and B select if Firm B moves first and Firm A moves second?

*****Please show your work*****