Kory has an income of $50, which she can spend on two goods: music albums and cups

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Kory has an income of $50, which she can spend on two goods: music albums and cups of hot chocolate. Both are normal goods for her. Each album costs $10, and each cup of hot chocolate costs $2. For each of the following situations, decide whether this is Kory’s optimal consumption bundle. If not, what should Kory do to achieve her optimal consumption bundle?

a. Kory is considering buying 4 albums and 5 cups of hot chocolate. At that bundle, her marginal rate of substitution of albums in place of hot chocolate is 1; that is, she would be willing to forgo only 1 cup of hot chocolate to acquire 1 album.

b. Kory is considering buying 2 albums and 15 cups of hot chocolate. Kory’s marginal utility of the second album is 25, and her marginal utility of the fifteenth cup of hot chocolate is

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Economics

ISBN: 9781319181949

5th Edition

Authors: Paul Krugman, Robin Wells

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