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Question: question 4 picky pete drags indifferent ian out for coffee...

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Question 4: Picky Pete drags Indifferent Ian out for coffee at an upscale Italian cafe which sells only espresso (E) and biscotti (B). Picky Pete simply must have one biscotti for every espresso consumed, whereas Indifferent lan views espresso and biscotti as perfect substitutes. One of their utility functions is given by Umin E, B and the others by U-E+ B (a) Given the description, which utility function corresponds to which person? (b) Suppose the prices of the goods are (pe,pB)- (2,1) and Pete has allocated $12 for the outing while Ian brought only $4. Solve for each persons utility-maximizing bundle of espresso and biscotti (c) Draw a fully labeled diagram illustrating Petes budget constraint, his optimal bundle, and an indifference curve representative of his utility at his optimal bundle. Indicate how much utility Pete obtains. (d) Do the same for lan.

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