Question: Good x costs px = 1 for the first 8 units. For any additional units, the price rises to px = 4. Good y always
Good x costs px = 1 for the first 8 units. For any additional units, the price rises to px = 4. Good y always costs py = 2. A consumer has m = 24 to spend. Together, this information means that the consumer's budget has a kink at (8, 8). This consumer has well-behaved preferences with MRSxy = 3x/y. Is x less than 8, equal to 8, or greater than 8? (You do not need to find the optimal bundle to answer this question, it can be answered based on the slopes of the two segments of the budget and the slope of the indifference curve through (8, 8). Given the MRSxy, are there more-preferred bundles along the budget to the left, to the right, or in neither direction?)
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