Question
Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has four times the
Tony is throwing a party at his Fraternity and is trying to choose what booze to buy. A bottle of vodka has four times the alcohol as a sixpack of beer. Assume that Tony only cares about the total amount of alcohol in his basket.(use vodka on X axis and beer measured in six pack on Y axis)
a)Devise a utility function to represent these preferences.
b)What is his marginal rate of substitution of a bottle of vodka for six packs of beer?
c)Suppose a bottle of vodka costs $45, a six pack of beer costs $15 and Tony has $180 budget. Write the budget constraint.
d)Solve Tony's utility maximization problem and find out optimal combination?
e)Now suppose that a bottle of vodka cost has increased to $60. What will be his new optimal combination?
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