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1. Suppose that the consumption of two doughnuts AND three glasses of cacao gives a utility...

1. Suppose that the consumption of two doughnuts AND three glasses of cacao gives a utility of one to a consumer. Write down the consumer’s utility function. Suppose that the consumer wants to maximize his utility. Find his demand for doughnuts and cacao given that a doughnut costs 6 € and a glass of cacao 4 €.

2. Suppose that the consumption of two doughnuts OR of one glass of cacao gives a utility of one to a consumer. Write down this consumer’s utility function. Suppose that the consumer wants to maximize his utility. Find his demand for doughnuts and cacao given that a doughnut costs 6 €, a glass of cacao 4 € and his income is 12 €.
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Answer #1

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It is given that the consumer is consuming 2 doughnuts and 3 glasses of cacao, which is giving him a utility of one.

Therefore, the utility function can be represented as follows:

Where, x is the consumption of doughnuts and y is the consumption of cacao.

If the consumer wants to maximize his utility, he would consume at the level where MRS is equal to the relative price ratio.

Therefore, his utility is getting maximized when is consuming 2 doughnuts and 3 glasses of cacao.

NOTE: As per Chegg guidelines, first question has been solved. Post the other question separately.

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