Question
Sammy always uses exactly 2 oz of cream for every 1 cup of coffee. She has $10 to spend. Coffee costs $1 per cup and
Sammy always uses exactly 2 oz of cream for every 1 cup of coffee. She has $10 to spend. Coffee costs $1 per cup and cream costs $0.50 per oz.
a. Carefully draw Aliyas budget constraint with coffee on the X-axis. You can use increments of 1 on the X-axis and 2 on the Y-axis. You do not need to show work.
b. Carefully draw and label any 3 accurate indifference curves. Label them U1, U2, and U3 where U3>U2>U1. You do not need to show work.
c. Label the following two combinations of coffee and cream on your graph: A: 5 coffee and 6 cream B: 3 coffee and 10 cream
d. Use your answer to part (c) to carefully explain whether bundle A or bundle B provides Aliya with more utility.
e. Algebraically determine Aliyas utility maximizing combination of coffee and cream. Be sure to show and explain all your steps and all your work.
f. Label Aliyas utility maximizing combination point M in the graph. Note: depending on your answer to part (b), you may need to draw an additional indifference curve
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