Ryan's preferences for food and gasoline each

week can be described by the utility function

U(F, G) 5 FG2, where F is pounds of food and G is gallons of gas. His monthly income is $1,200, the price

of food is $4 per pound, and the price of gas is $4 per gallon. The government gives him $1,200 per month in food stamps.

a. What is the formula for his MRSFG? Do his

preferences have the declining MRS property? b. What bundle of food and gasoline would he

choose without the food stamp program?

c. Draw his budget set (the set of affordable bundles)

with the food stamp program.

d. What is his best choice with the food stamp

program in place?

e. Suppose the government wants to give him a cash

grant instead that would get him to consume 40 lbs of food per week. How much more would that program cost the government than the food stamp program?