Question

5. A peasant has utility U(B,C) 4VB C over bread B and flourless cake C, with marginal utilities MUB -2/VB 5.d U (95),Wtnette isend,ipy oLi1s and MUc-1. Prices are pB-2 and pc-3, and his income is 1 = 33, First, double-check that he initially consumes (B, C) (9,5), with utility U 17, and illustrate on a budget/indifference curve diagram. Next, benevolent monarch Marie Antoinette learns that carbs are evil. She wants to discourage bread consumption without making the peasant worse-off. To this end, she taxes bread, tripling its total price to pB-6, while also scattering a lump sum of gold coins in the dirt, thereby raising his income to I 33 + L. Determine how many gold coins L she must give him if she wishes to leave him just as happy (U = 17) as he was before. Show this whole situation on a diagram. (A good diagram will help you figure out how to find L.) Is the lump sum L big enough for him to afford his old consumption bundle (9,5)? Explain