Name: Managerial Economics 2009 A 1. Kathy loves apple pie a la mode (a slice of pie with two scoops of vanilla ice cream on top), but she doesn't like apple pie by itself or vanilla ice cream by itself. That is, she views apple pie and vanilla ice cream as perfect complements. She spends $3 per week on apple pie (at $0.05 per slice) and vanilla ice cream (at $0.10 per scoop). Kathy is a particular eater and enjoys exactly 1 slice of pie and 2 scoops of vanilla ice cream on top. She will never change these proportions. Suppose that slices of pie are measured on r-aris and scoops of ice cream on y-aris and answer the following questions. 4 (a) How many slices of pie and scoops of vanilla ice cream will Kathy buy, with her $3 budget in a week? 4 (b) Suppose the price of pie were to rise to $0.15 an slice. How much of each commodity would be bought? 4 (c) By how much should Kathy's budget be increased to compensate for the rise in the price of pie in part (b)? 4 (d) Graph your results in parts (a) to (c). 4 (e) In what sense does this problem involve only a single commodity, apple pie a la mode? Graph the demand curve for this single commodity. 4 (f) Discuss the results of this problem in terms of the income and substitution effects involved in the demand for slices of pie. 2. Let total cost for each firm in perfectly competitive industry be TC(q) = 100 + q2 for positive q and TC(q) = 0 for q = 0, and demand be Q = 10000 - 100P. Answer the following questions. uilibrium