Question #63692

Steve's utility function is U = BC, where B = beer cans per week and C = pack of cigarettes per week. As a result, his marginal rate of substitution is MRS = -B/C, where beer is on the vertical axis and cigarettes are on the horizontal axis. Steve's income is $120, the price of a can of beer is $2 and that of a pack of cigarettes is $1. [In answering the following, use graphs and math.]
A. How many cans of beer and packs of cigarette does Steve consume? (12)
B. Due to a new tax, the price to Steve of a can of beer rises to $3. Now how much beer and how many packs of cigarettes does Steve consume? (13)

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