Exercise 2: Maximizing utility with perfect substitutes. (50 pts)
Bill likes both Red Bull (x1) and Monster (x2) energy drinks. Both help him stay awake
to finish his microeconomics homework, so they’re perfect substitutes in that sense (though Monster cans are larger). His preferences over the drinks can be represented by utility function
U(x1, x2) = 5x1 + 4x2.
(b) What’s Bill’s optimal (x1, x2) choice given his preferences, income, and the prices of the two goods.
(c) What is the value of Bill’s utility at this utility maximizing choice?
(d) Monster is running a major promotion and is selling for $.50 a can. What is Bill’s
new consumption choice?
(e) What is the new value of Bill’s utility at this utility maximizing choice?