Problem: Lulu has a utility function of U(X, Y) = (X0.4Y0.6) for goods X and Y. Assume that she is a utility maximizing consumer who spends all of her weekly budget of $18 on goods X and/or Y. The price of good X is $1.40, while the price of good Y is $1.60.
(a) Calculate Lulu's best affordable bundle.
(b) Prove that the bundle you calculated in (a) above is affordable.
(c) Explain what happens to Lulu's marginal rate of substitution as you move down her indifference curve? As part of your answer, explain what marginal rate of substitution means.