Suppose the person faced with the budget constraint described in problem 2.1 has preferences for
apples (A) and bananas (B) given by
Utility ¼ ffiffiffiffiffiffiffiffiffiffi
A · B p
a. If A ¼ 5 and B ¼ 80, what will utility be?
b. If A ¼ 10, what value for B will provide the
same utility as in part a?
c. If A ¼ 20, what value for B will provide the
same utility as in parts a and b?
d. Graph the indifference curve implied by parts a
through c.
e. Given the budget constraint from problem 2.1,
which of the points identified in parts a
through c can be bought by this person?
f. Show through some examples that every other
way of allocating income provides less utility
than does the point identified in part b. Graph
this utility-maximizing situation.