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4 mrs smith likes to drink wine in particular a...
Question: 4 mrs smith likes to drink wine in particular a...
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![4. Mrs Smith likes to drink wine; in particular, a french bordeaux (f) at 840 per bottle and a California varietal wine (c) priced at $8. She allocates $600 to these two each month; and her utility is: U(f,c)-f/3c1/3 a) Write out Mrs Smith (constrained) utility maximization problem. Solve for the optimal consumption of wine f and c. b) Suppose the price of f falls to $20, but c continues to be priced at 88. How much of each wine will she buy under these altered conditions! (c) How would you put a monetary value on this utility increase in (b) over (a)? [Hint: Find compensating variation, CV: the expenditure required for the higher U level in (b) at the set of old prices; or alternatively, find equivalent variation EV: that is, expenditure required to stay on lower U level in (a) at the new set of prices]](https://homework-api-assets-production.s3.ap-southeast-2.amazonaws.com/uploads/store/425143266/16040310631b886f5173f3be0a034ce9a5532d4851.png)