Hello,
I am having lots of trouble with this question regarding preferences, and was wondering If someone can lead me to the answer
Q: Tom loves Green Ox energy drinks (good 1) and Paris Horton coffee (good 2). His preferences are described by the utility function U(x1, x2) = min{x1, x2}.
Prices are p1 = 2 and p2 = 1, and his income is m = 120 dollars
How many energy drinks and how many coffees will Tom consume? What if Tom finds that he likes energy drinks twice as much as coffee?
Give a utility function that describes his new preferences.
Thank you very much
1) U=min{x1, x2} -> perfect complements -> buying in "a pack" -> the pack consists of one good 1 and one good two -> total price for the pack is p1 + p2 = $3 -> m/pack price = 120/3 = 40 packs -> 40 energy drinks, 80 coffees
2) "he likes energy drinks twice as much as coffee" -> energy drink utility is two times bigger -> U=min{2*x1, x2} (this is a new utility function) -> analogically as in 1)