PROBLEM : 3 - CONSUMER CHOICE WITH A QUANTITY DISCOUNT

Jodie has a monthly income of $1000. He spends this income on gummy bears (G) and "other goods" (X). The first 2500 gummy bears always cost $0.2 per unit. When buying more than 2500 gummy bears, they are offered at a discounted price of $0.1per unit for any amount above 2500. The unit price of the "other goods" is $1.

1. Provide the budget set sketch.

2. Using optimization techniques, determine Jodie's optimal bundle given that his preferences can be represented by the utility function U (G, X) = GX. Make sure to also Illustrate your answer graphically.

3. Suppose instead that Jodie's utility function is V(G, X) = GX 25. How would that change your answer to subquestion 2? Explain.