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

  1. 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
  1. 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)
  2. What total utility will Rony realize? (1 mark)
  3. 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)
  4. When the price of chips is $1, what is Rony's total utility? (1 mark)
  5. Using the two prices and quantities for chips, draw a demand curve for chips for Rony. (2 marks)
  6. Calculate the price elasticity of demand for chips. (2 marks)

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