Question
Kai has heard of your fame as an economist who specializes in consumer behavior and optimizing people's well-being based on their choices. He comes to
Kai has heard of your fame as an economist who specializes in consumer behavior and optimizing people's well-being based on their choices. He comes to you for advice. Every day he consumes 3 ice-creams and 1 bagel. Ice-creams cost him $2.50 each and bagels cost him $4 each. His utility across ice-creams (i) and bagels (b) is given by the following function: u(i, b) = i ^0.6 b^0.4 a) What advice would you give to Kai? Is he maximizing his well-being? Explain to him why he is/isn't achieving his best and improvements he can/can't make. b) Graph the situation showing both the current consumption bundle and his optimal bundle.
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