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Assume the consumer's utility function is given by , where C stands for cheese and W stands for wine. a. Find the optimal quantities

 

Assume the consumer's utility function is given by , where C stands for cheese and W stands for wine. a. Find the optimal quantities of cheese and wine consumed, given a total budget of 3,000, a price of wine of 3 per glass and the price of cheese of 6 per kilo. b. The price of wine increases to 6 per glass. Find the new optimal quantities of cheese and wine consumed. How has the optimal bundle changed? c. How has the optimal bundle changed? Define the total change due to the increase in the price of wine and decompose it into substitution and income effect.

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