The utility that meredith receives by consuming food f and

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The utility that Meredith receives by consuming food F and clothing C is given by u(F,C) = FC Suppose that Meredith"s income in 1990 is $1200and that the prices of food and clothing are $1 per unit for each. By 2000, however, the price of food has increased to $2 and the price of clothing to $3. Let 100represent the cost of living index for 1990. Calculate the ideal and the Laspeyres cost-of-living index for Meredith for 2000. (Hint: Meredith will spend equal amounts on food and clothing with these preferences.)

Reference no: EM13321479

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