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# Suppose that Jana cares only about apples and lettuce. Her utility function is U = A 0.5 L 0.5 , where A is the number of apples and L is the number...

1.     Suppose that Jana cares only about apples and lettuce. Her utility function is U = A0.5L0.5, where A is the number of apples and L is the number of heads of lettuce that she consumes. The price of apples is \$1, and the price of lettuce is \$4. Suppose that Jana have \$40 to spend.

a) Determine the maximum number of apples (A) and heads of lettuce (L) she can purchase if she only purchase apples or only purchases lettuce.                                                                                        2 points

b) State Jana's budget constraint (line) in the format L= intercept - slope * A                                 1 point

c) Determine Jana's MRSAL (Apples for Lettuce)                                                                                           1 point

d) Does Jana's utility function satisfy the rules "more is better" and "diminishing marginal utility"? Motivate your answers.                                                                                                                                     2 points

e) What is the optimal number of apples (A) and heads of lettuce (L) for Jana given her budget constraint?                                                                                                                                                                                                               2 points

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