Tianyu has a $10 budget for his breakfast at his favorite coffee shop. The menu has two items: coffee is $5 per cup and
Tianyu has a $10 budget for his breakfast at his favorite coffee shop. The menu has two items: coffee is $5 per cup and croissants are $2.5 per each. The coffee shop has a special promotion for coffee: if you purchase two cups of coffee, you will get the third cup for free (buy-two-get-one-free). Tianyu's preference over coffee (good x) and croissants (good y) can be represented by a utility function u(x, y) = In x + In y where MUX = and MU = y E. (10 points) The coffee shop now offers a new product, chocolate muffins, at a price of $3 per each. Tianyu's preference over croissants (good x) and muffins (good z) can be represented by a utility function v(x, z) = x + z, so his breakfast utility function (with coffee, good y, included) can be rewritten as u(x, y, z) = ln(x + z) + Iny where MUx = MUZ MUy 1 = and x+z = How will Tianyu adjust his breakfast purchase? Explain your answers carefully. y Optimal coffee consumption: Optimal croissant consumption: Optimal chocolate muffin consumption: Your explanation here:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To solve this problem well proceed in the following steps 1 Understand Tianyus utility function and budget constraint before and after the introduction of the chocolate muffins 2 Determine the optimal ...See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
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