Kristine likes to eat as many croissants and doughnuts as she can and sees them as substitute goods. When Kristine has more doughnuts than croissants, she will give up two doughnuts for a croissant and find herself as well off as she was before. Otherwise, she will give up two croissants for a doughnut and remain indifferent. Croissant's cost pc = 1 and doughnuts cost pa = d. Kristine has an income of m = 10. Assume that all units are divisible. a) How many croissants does Kristine consume when d = 1? b) How many croissants does Kristine consume when d = 3? c) How many croissants does Kristine consume when d = 0.25? d) Find a price d such that Anne would optimally consume 6 croissants and 2 doughnuts.
Kristine likes to eat as many croissants and doughnuts as she can and sees them as substitute goods. When Kristine has more doughnuts than croissants, she will give up two doughnuts for a croissant and find herself as well off as she was before. Otherwise, she will give up two croissants for a doughnut and remain indifferent. Croissant's cost pc = 1 and doughnuts cost pa = d. Kristine has an income of m = 10. Assume that all units are divisible. a) How many croissants does Kristine consume when d = 1? b) How many croissants does Kristine consume when d = 3? c) How many croissants does Kristine consume when d = 0.25? d) Find a price d such that Anne would optimally consume 6 croissants and 2 doughnuts.
Chapter4: Utility Maximization And Choice
Section: Chapter Questions
Problem 4.5P
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