Question

A consumer consumes pizza and soda always in the fixed proportion of 3 slices of pizza (x) with 2 cups of soda (y). Any pizza or soda not consumed together with the proportional amount of the other is useless to her. (a) Write down a utility function u(x,y) that represents her preferences. (b) If she has I = $60 budget and px = 4, py = 4, what is her optimal bundle? (c) In (b), If the price of soda increases to $6, how much money should she be compensated so that she achieves the same level of utility before the price increase?

          A consumer consumes pizza and soda always in the fixed proportion of 3 slices of pizza (x) with 2 cups of soda (y). Any pizza or soda not consumed together with the proportional amount of the other is useless to her.

(a) Write down a utility function u(x,y) that represents her preferences.
(b) If she has I = $60 budget and px = 4, py = 4, what is her optimal bundle?
(c) In (b), If the price of soda increases to $6, how much money should she be compensated so that she achieves the same level of utility before the price increase?

Added by Christine M.

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