Problem
Natasha divides her budget of M = $12 between calling on the wireless phone and driving consuming gasoline. Suppose Natasha's preferences are U (G, W ) = W + 8√G where W is the number of hours of wireless phone usage and G is the gallon of gasoline she consumes. The price of wireless phone is PW = $3 per hour and the price of gasoline is PG = $3 per gallon. Hint: a consumer cannot consume a negative amount of gasoline and wireless phone usage.
• What is her optimal consumption bundle of wireless phone and gasoline?
• What is her maximized utility?
• Draw and label clearly (a) the budget line when gasoline is available, (b) the optimal consumption bundle when gasoline is available, (c) the indifference curve crossing the optimal consumption bundle when gasoline is available.