Alan likes eating chocolates and oranges. His utility is described by U(x₁, x2) = (x₁ - )"x2, where x₁ s chocolate and 2 is oranges. Chocolates are addicitive, so y represents a reference point, any amount of chocolates consumed less that y does not increase utility. The price of ₁ is p₁ and the price of 22 is 2. Alan's income is m. • State the optimization problem. • Find the utility maximizing values of chocolates, ₁, and oranges, 2. • Test whether these will indeed yield maximum utility. • Determine how a changes as y changes. Why do you think so?

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