How many burgers and how many packs of cigarettes

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Constrained Consumer Choice. Steve's utility function is U = BC, where B = veggie burgers per week, and C = packs of cigarettes per week. Here MUB = C and MUC = B. 1.1. What is his marginal rate of substitution if veggie burgers on the vertical axis and cigarettes are on the horizontal axis? 1.2. Steve's income is $120, the price of a veggie burger is $2, and that of a pack of cigarettes is $1. How many burgers and how many packs of cigarettes does Steve consumer to maximize his utility? 1.3. When a new tax raises the price of a burger to $3, what is his new optimal bundle? Illustrate your answer in a graph.

Reference no: EM13148578

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