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Problem set 2

# Problem set 2 - Econ 100A Microeconomics Professor Reynolds...

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Econ 100A – Microeconomics Professor Reynolds Department of Economics University of California, Berkeley Problem Set 2 Due 8:10 am Feb 8th 1. This problem illustrates that the Lagrange method of solving does not work in all cases. A. I only consume ice cream and bananas in the form of banana splits, which I make with three scoops of ice cream and one banana. The price of ice cream is \$0.50 a scoop. Bananas are \$0.25 each. I have \$5 to spend on ice cream sundaes this week. Set up the Lagrangean as if you were going to use it to solve. B. Explain why you cannot solve this optimization problem using the Lagrangean. (You may wish to start solving & then see where you get stuck.) C. Graph the budget constraint & some indifference curves. D. What is the optimum combination of ice cream scoops and bananas that maximize utility given this budget constraint? (Assume you can consume fractions of bananas and scoops.) 2. This problem explores my quasilinear tastes for vitamins, x 1, in relation to other consumption in dollars, x 2 .

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