Question: Rony is choosing between two snacks, chips and sour gums, and her marginal utility from each is as shown below. Units of Chips MUc Units
- Rony is choosing between two snacks, chips and sour gums, and her marginal utility from each is as shown below.
| Units of Chips | MUc | Units of Sour Gums | MUs |
|---|---|---|---|
| 1 | 10 | 1 | 8 |
| 2 | 8 | 2 | 7 |
| 3 | 6 | 3 | 6 |
| 4 | 4 | 4 | 5 |
| 5 | 3 | 5 | 4 |
| 6 | 2 | 6 | 3 |
- If Rony's income is $9 and the price of chips and sour gums are $2 and $1 respectively, what quantities of each will Rony purchase to maximize utility? (4 marks, show all your work)
- What total utility will Rony realize? (1 mark)
- Assume that, other things remaining unchanged, the price of chips falls to $1. What quantities of chips and sour gums will she now purchase? (2 marks)
- When the price of chips is $1, what is Rony's total utility? (1 mark)
- Using the two prices and quantities for chips, draw a demand curve for chips for Rony. (2 marks)
- Calculate the price elasticity of demand for chips. (2 marks)
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