a. Suppose Fiona’s income is $100 per week, which she allocates between chocolates and books. Chocolates cost $2 each. Books cost $10 each if she purchases between 1 and 5 books. If she purchases more than 5 books in a week, the price falls to $5 for the 6th book and all subsequent books. Draw the budget constraint. Is it possible that Fiona might have more than one utility-maximizing solution?
a. Suppose Fiona’s income is $100 per week, which she allocates between chocolates and books. Chocolates cost $2 each. Books cost $10 each if she purchases between 1 and 5 books. If she purchases more than 5 books in a week, the price falls to $5 for the 6th book and all subsequent books. Draw the budget constraint. Is it possible that Fiona might have more than one utility-maximizing solution?
b. Confirm that if a consumer’s utility function is described by U = 2X + Y, and prices are px = 2 and py = 1, there is no unique utility maximizing solution regardless of income level. What does this tell you about X and Y as commodities? (Hint: draw a graph showing a budget constraint and indifference curve using the information provided.)
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