ex2part1Image (157)Image (158)Image (159)Image (160)ex2part2ex2part3ex2part4ex2part5Economics 11 Byeong-Hyeon JeongAnswer for the second extra exercises.3.(a)U px1, x2q “ mintx1, x2u, where x1is for black coffee and x2is for sugar.(b)At the optimal choice, x1“ x2and p1x1` p2x2“ m. By solving simultaneously for x1and x2,x1pp1, p2, mq “mp1` p2,x2pp1, p2, mq “mp1` p2are the demand functions. You can get the optimal choice by plugging p1“ 1, p2“ 2, and m “ 21.x˚1“ x˚2“ 7.4.(b)Using the tangency approach,´1x1“ ´p1p2,p1x1` p2x2“ m.By solving simultaneously for x1and x2,x1“p2p1,x2“mp2´ 1.Note that there is a possibility of corner solution as x2can be negative when m ă p2. If m ă p2, theoptimal consumption of good 2 is 0 and by using all the income in good 1, th e op timal consumptionOctober 14, 2016 1Economics 11 Byeong-Hyeon Jeongof good 1 is m{p1. The demand functions can be written asx1pp1, p2, mq “$&%p2p1if p2ă m,mp1if p2ě m.x2pp1, p2, mq “$&%mp2´ 1 if p2ă m,0 if p2ě m.(a)As we already have the demand functions, getting optimal choices can be done by plugging thenumbers.(i) x˚1“ 1, x˚2“ 19.(ii) x˚1“ 1, x˚2“ 39.(iii) x˚1“ 0.5, x2“ 29.October 14, 2016 2Scanned by CamScannerScanned by CamScannerScanned by CamScannerExercise 2 Choice