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Nesile has perfect substitute preferences towards consuming apples ( a ) and oranges ( o ). More precisely, her preferences are represented by the utility
Nesile has perfect substitute preferences towards consuming apples (a) and oranges (o). More precisely, her preferences are represented by the utility function
u(a,o) = 2a+o
Let the price for one apple is pa = $3 and the price for one orange is po = $3.
- (a)Set up Nesile's expenditure minimization problem for an arbitrary level u ? of minimum utility (be sure to present all the necessary elements). (Points: 5)
- (b)Assume u ? = 12 and solve for her optimal compensated demand (present all necessary calculation). (Points: 10)
- (c)What is the minimum income Nesile needs in order to be able to purchase the optimal bundle from the item above? (Points: 5)
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