Microeconomics 2nd Edition by Douglas Bernheim

Exercise 2

(Calculus version below.) Nadia spends her money on cheese pizza and frozen yogurt. Her utility function is U ( C , F )= ( C + 2) × ( F + 3), where C represents ounces of cheese pizza and F represents pints of frozen yogurt consumed in a week. For this utility function, MU C = F + 3 and MU F = C + 2. Her weekly income is $20, the price of pizza is $1 per ounce, and the price of yogurt is $2 per pint. What is Nadia's MRS FC Do her preferences satisfy the declining MRS property What is her best choice How much would we have to pay Nadia to compensate her for doing without any pizza for a week