Shyama maximizes her utility by eating ice creams and chocolates. The price of an ice cream is
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Question:
Shyama maximizes her utility by eating ice creams and chocolates. The price of an ice cream is $12 and the price of a chocolate is $4.
a) Give the utility maximization condition for Shyama.
b) When Shyama maximizes her utility, how does the marginal utility (MU) of ice cream compare with the MU of chocolate? Is the former greater than, less than or equal to the latter? Explain your answer.
c) How do the marginal utilities of the two goods compare at the new point of utility maximization if the price of chocolate increases to $6 and the price of ice cream remains at $12.
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