Microeconomics 2nd Edition by Douglas Bernheim

Exercise 4

Ely's preferences for bread and soup can be represented by the utility function U ( S , B ) = S (1 + B ). Soup costs $1 per pint and bread costs P B per ounce. Ely has $10 to spend. What is the formula for Ely's MRS SB Does it have the declining MRS property Solve for and graph Ely's price-consumption path (varying P B ). For what values of P B is his best choice an interior solution For what prices is it a boundary choice