Duffy derives utility from only two goods: milk and cookies. He only consumes mi

Question

Duffy derives utility from only two goods: milk and cookies. He only consumes milk and cookies in fixed proportions: he likes to have 4 cookies with each glass of milk. Duffy has income of $270, the price of milk is $1 per glass, and the price of a cookie is $2.

a.     Determine and graph Duffy’s budget constraint (put milk on the horizontal axis).

b.     Write a utility function consistent with Duffy’s preferences for milk and cookies.

c.     Graph an indifference curve of Duffy’s. Plot and label particular points on the indifference curve. Be sure to label your diagram completely.

d.     What quantities of milk and cookies will maximize Duffy’s utility given his budget constraint. Explain how you know this is the optimal solution.

Explanation / Answer

Answer)

In economics utility is the power to have satisfaction from a good consumed.

here if we say about budget constraint that means the limit that a budget gives combiation or bundle of goods, so in the above situation Duffy only cosumes milk and cookies in fixed proportions that means if he consumes 8 glass of milk than he will definietly consume 8 cookies too. and the price of milk is $1 per glass where as the price of cookie is $2 per cookie.

so if he consumes 4 glass fo milk it will cost $ 4 only and 4 cookies means it will cost $ 8.

so here the total combination with $270 will be 188, there can be 188 combinations of milk and cookie.now the budget constraint is

we will take milk on horizontal axis and cookie on vetical axis, the curve will be equal from both side it wil not e ore flatter or steeeper because the Duffy ahs to use the combination in fixed proportion and that too equally.

he will be geting maximum satisfaction with 90 glass of milk and 180 cookies.

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