Question
Katia who has preferences represented by an utility function u(x, y, z), where x is the amount of food, y is the amount of composite
Katia who has preferences represented by an utility function u(x, y, z), where x is the amount of food, y is the amount of composite good and z is the amount of soda. Page 2 Assume that all the prices are equal to 1, that is the price of food is px = 1, the price of composite good is py = 1 and the price of soda is pz = 1. Katia has also an income of I = $450 and she receives food stamps for a value of F S = $150. Assume that Katia can use the food stamps to buy both food and soda. i. Can Katia afford the basket x = 180, y = 400 and z = 20? Explain. ii. Assume that this basket (x, y, z) is the optimal basket for Katia. ) Can you have MUx(x, y, z) > MUy(x, y, z) at this optimal basket? Explain. ) Can you have MUx(x, y, z) > MUz(x, y, z) at this optimal basket? Explain.
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