CHECKING FOR WARP (CHAPTER-7) The following table contains the consumption bundles reported by a consumer at 3 different price pairs: Observation P1 P2 C 2 1 3 4 5 7 2 4 3 7 5 3 2 2 4 4 The next table shows the expenditure on these bundles at the 3 different price pairs: Price pair Cost of bundle 1 Cost of bundle 2 Cost of bundle 3 1 43 41 28 2 41 43 28 3 24 24 16 Given the information above, begin by labeling the bundles that are revealed. weakly preferred in the second table. Do the preferences of this consumer satisfy or violate the WARP (weak axiom of revealed preferences)? Why or why not?WW MID TERM: B BECN 302 A Wi 24: Intermediate Microeconomics d Question 1 Not yet graded / 40 pts STATIC CONSTRAINED OPTIMIZATION Suppose a consumer has the following Cobb-Douglas type utility function: U (21, 12) = 01 12 where x1 and @2 are the quantities of good 1 and 2 purchased. part-a: If income of the consumer is $100, and prices of goods 1 and 2 are p1 =$5 and p2=$8, what is the optimal consumption bundle chosen by this consumer? Illustrate the optimal bundle using the consumer's budget and indifference curves. (15 pts) part-b: Now suppose the price of good 1 doubles to $10. Find the new optimal consumption bundle. Illustrate the new situation on your plot from part-a. (15 pts) part-c: Is good 1 a normal or an inferior good? Are goods 1 and 2 substitutes or complements? (10 pts) red Question 2 Not yet graded / 40 pts