Consumer Theory Part 2 - with Indifference Curves The figure shows three of Haro
ID: 1217920 • Letter: C
Question
Consumer Theory Part 2 - with Indifference Curves The figure shows three of Harold's indifference curves for bread and cheese. If the price of bread is $1 per loaf, the price of cheese is $2, and Harold has $10 to spend on bread and cheese, what is Harold's optimal consumption bundle of bread and cheese? Justify your answer. If the price of bread is $1 per loaf, the price of cheese is $2, and Harold has $14 to spend on bread and cheese, what is Harold's optimal consumption bundle of bread and cheese? Justify your answer. Given that the price of bread is $1 per loaf and the price of cheese is $2, as Harold's income increases from $10 to $14, determine whether bread is a normal or inferior good for Harold. Determine whether cheese is a normal of inferior good for Harold. Justify your answers. Assume the price of bread is $2 per loaf, the price of cheese is $3, and Harold has $12 to spend on bread and cheese. If the marginal utility of the last loaf of bread is 5 and the marginal utility of the last pound of cheese is 6, how should Harold change his consumption (if at all) to maximize his utility? Explain your reasoning.Explanation / Answer
Bread
Cheese
Total Income
Price / pc
1
2
10
Combination
10
0
10
Combination
8
1
10
Combination
6
2
10
Combination
4
3
10
Combination
2
4
10
Combination
0
5
10
Bread
Cheese
Total Income
Price / pc
1
2
14
Combination
14
0
14
Combination
12
1
14
Combination
10
2
14
Combination
8
3
14
Combination
6
4
14
Combination
4
5
14
Combination
2
6
14
Combination
0
7
14
The optimal combination that can be chosen is 4 Bread and 5 Cheese combinations.
Bread
Cheese
Total Income
Price / pc
2
3
12
Combination
6
0
12
Combination
4.5
1
12
Combination
3
2
12
Combination
1.5
3
12
Combination
0
4
12
The utility from the last unit of cheese consumed is higher that the bred that is Harold will choose the combination of 1.5 unit of bread and 3 units of cheese.
Bread
Cheese
Total Income
Price / pc
1
2
10
Combination
10
0
10
Combination
8
1
10
Combination
6
2
10
Combination
4
3
10
Combination
2
4
10
Combination
0
5
10
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