9* Consider a coffee-drinking consumer who requires teaspoon of sugar (S) and 2

Question

9* Consider a coffee-drinking consumer who requires teaspoon of sugar (S) and 2 teaspoons of cream (C) in every cup. So C/S 2/1 (i.e. so C 2S). This consumer's utility function for coffee can then be written as U min(C,2S) (so if C 10, and S 10, then U-min 10,2*10) 10 and the consumer would use 10 C and 5 S, and through 5 S away). This will produce L-shaped indifference curves like the ones in question 8 above fyi these are called Leontief indifference curves) Which of the following bundles of S and C below yield the highest level of utility for this consumer? a. b. c. d. 6 S and 12 C 10 S and 16 C 15 S and 14 C 12 S and 12 C

Explanation / Answer

Answer - b. 10S and 16C

In this case, the utility will be U=min(16,2*10) = 16. The consumer will use 16 teaspoon of cream and 8 teaspoon of sugar.

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