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)

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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