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Mathematics, 07.10.2020 23:01 kev485

The model. A consumer can decide a quantity of marijuana to consume, xx. Marijuana has a price of pp. Moreover, using more marijuana increases the likelihood of being stopped by the police, which happens with probability . Utility is quasilinear in money yy spent on all other goods, and equals uu(xx, yy) = 100 log xx − PPxxAA + yy, where AA measures how harsh the consequences of an arrest are. (Note: log stands for the natural log). a) Find the optimal level of marijuana consumption. b) What is the effect of increasing the likelihood of arrest PP

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