Charlie consumes only peanut butter and jelly. Denote the quantity of peanut but
ID: 1230537 • Letter: C
Question
Charlie consumes only peanut butter and jelly. Denote the quantity of peanut butter in a typical consumption bundle by x (kilograms) and the quantity of jelly by y (kilograms). The consumption sot is R2. Charlie has $2400 in wealth to spend on peanut butter and jelly. The price of peanut butter is pt = 88/kg and the price of jelly is py = 48/kg. Draw Charlie's budget set in an appropriate diagram. What is the slope of the budget line? To promote employment in the peanut growing industry through a higher sale of peanuts, the government introduces an ad valorem subsidy on peanut butter of tx% per $ of peanut butter purchased. Draw Charlies budget set when tx = 50. For Charlie, peanut butter and jelly are perfect complements. He considers the perfect combination to be 2kg of peanut butter for every 1kg of jelly. These preferences can be represented by the utility function u(x, y) = min{2x, y}, where x is the quantity of peanut butter and y is the quantity of jelly consumed. With preferences represented by this utility function answer the following questions: What is Charlie's demand for peanut butter and jelly before the peanut butter subsidy is introduced?Explanation / Answer
as y = 2x so the eqn 88*x + 48*y = 2400 88*x + 48*2x = 2400 x = 13.04 so earlier he consumes 13.04 kg of peanut butter and 26.08 kg of jelly