Suppose a person has $8 to spend only on apples and bananas. Apples cost $.04 each and bananas cost $.01 each. Furthermore, his preferences for apples (A) and bananas (B) can be represented by U = the square root of AB.
a) If A =5 and B=80, what will utitly be?
b) If A =10, what value of B will provide the same uititly in part a?
c) If A=20, what value of B will provide the same utility in parts a and b?
d) Graph the indifference curve implied by parts a through c.
e) Give the budget constraint, 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 partb. Graph this utility maximizing situation.