Question 5: Denny views Scotch (S) and Cigars (C) as perfect complements. He always consumes them in equal proportions. One without the other gives him no utility. As such, his utility function is given by U=min[S,C]. His income is 100 and prices are pC=pS=5.

(a) What is Denny’s optimal consumption bundle? How much utility does he obtain from it?

(b) Would Denny prefer all prices fall to 1 or that his income be increased to 500? Explain.

Suppose Denny’s income remains at 100 but you do not know what the prices of scotch and cigars are.

(c) Find Denny’s demand function for Scotch,qS, and cigars,qC. [Hint: You are solving for how much C and S Denny would purchase for any possible prices pS and pC.]

Answer rating: 100% (QA)

a Dennys optimal consumption bundle occurs when he consumes Scotch and Cigars in equal proportions d... View the full answer