Ely's preferences for bread and soup can be represented by the utility function U(S,B) = S(1 + B). For this utility function, MUS = 1 + Band MUB = S. Soup costs $1 per pint and bread costs PB per ounce. Ely has $10 to spend. What is the formula for Ely's MRSSB? Does it have the declining MRS property? Solve for and graph Ely's price-consumption curve and his demand curve for bread (varying PB). For what values of PB is his best choice an interior solution? For what prices is it a boundary choice?
This question was answered on: Jul 11, 2017
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