Question
Harry consumes two goods, beer (b) and chicken wings (w), and his utility function is U(b,w) = b 2/3 *w 1/3 . The price of
Harry consumes two goods, beer (b) and chicken wings (w), and his utility function is U(b,w) = b2/3*w1/3. The price of beer is $5, the price of wings is $1, and Hal's income is $36. a.Solve for the utility maximizing bundle, and his maximized level of utility. Set up the lagrangian and find the partial derivatives to solve
b.Suppose that a $0.50 tax on wings raises the price to $1.50. Calculate Harry's new utility maximizing bundle, the amount of revenue raised by the tax, and his new maximized level of utility.
c.Calculate the income which could have been raised by a lump sum tax that would leave the price of wings unchanged from part a and provide Hal the same level of utility as in part b.
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