Q1) A consumer cares only about the total amount of beer he drinks. Hence he considers two 12 ounce cans of beer to be as good as one 24 ounce bottle. Assume these are the only two goods available to this consumer. Price of a 12 ounce can is $1.00, while price of a 24 ounce bottle is $3.00 due to higher packaging costs.
a) Write down his budget constraint and utility function that captures his preferences. Sketch his budget constraint and three of his indifference curves.
b) Determine his optimal consumption bundle? Describe your reasoning.
c) Fixing price of a 24 ounce beer at $3.00, what should we make the price of a 12 ounce beer to have consumer purchase both goods?
d) At price you find out in c) what is the best choice? Describe.