Question

Use the following scenario to answer questions 1-4. Rachel likes Cliff Builder Bars and Chocolate Milk. The bars cost $2 each and the milk costs $2.5 per pint jug. Her Utility schedule is given below.

Cliff Builder Bars			Chocolate Milk
Bars	Utility	Marginal Utility	1 pint jug	Utility	Marginal Utility
0	0		0	0
1	250	250	1	300	300
2	490	240	2	560	260
3	715	225	3	770	210
4	923	208	4	920	150
5	1113	190	5	1000	80
6	1283	170	6	1040	40
7	1423	140	7	1080	20
8	1523	100	8	1070	10
9	1587	64	9	1075	5
10	1591	4	10	1075	0

1. If Rachel has $6.50 to spend, how many Cliff Bars and Jugs of Chocolate Milk will she purchase?
   1. 1 Cliff Bar; 2 Jugs of Chocolate Milk
   2. 4 Cliff Bars; 0 Jugs of Chocolate Milk
   3. 2 Cliff Bars; 3 Jugs of Chocolate Milk
   4. 2 Cliff Bars; 1 Jug of Chocolate Milk

2. If she has $42.50 to spend, how many of each item will she purchase?
   1. 9 Cliff Bars; 8 Jugs of Chocolate Milk
   2. 8 Cliff Bars; 10 Jugs of Chocolate Milk
   3. 10 Cliff Bars; 9 Jugs of Chocolate Milk
   4. 9 Cliff Bars; 9 Jugs of Chocolate Milk

3. Assume that Rachel is willing to pay up to $5 for each Cliff Bar and $4 for each jug of chocolate milk. If Rachel has $13 to spend, what is her total consumer surplus?
   1. $12
   2. $8
   3. $15
   4. $18

4. Cliff Builder Bars are made with soy protein. Assume that a pest destroyed a good portion of the soybean crop and a virus killed large numbers of dairy cows. This increased the price of Cliff bars to $6 and chocolate milk to $5 per pint. If Rachel has $100 to spend, how many of each item will she purchase (based on her maximum willingness to pay from the previous question)?
   1. 20 Cliff Bars; 24 Jugs of Milk
   2. 25 Cliff Bars; 20 Jugs of Milk
   3. Need more information
   4. She won’t buy anything

Answer 1

1. 2 Cliff bars & 1 Jug of Chocolate milk

If Rachel has $6.5 to spent , she will choose this option as, 2 cliff bars* 2= $4 & 1 jug * 2.5 = $ 2.5

& total will be $ 6.5.

2. 10 cliff bars & 9 jugs of chocolate milk

$ 42.5 to spend ,

10*2= $ 20 & 9*2.5=$22.5

total = $42.5

3. $ 15

she has $13 to spend , she will buy 4 cliff bars (4*2=$8) & 2 jugs of choclate milk ( 2*2.5 =$5)

but for the same quantity she was willing to pay $ 5 per cliff bar ( 4 * $5 =$20) & $ 4 per jug of chocolate milk ( 2* $4 =$8)

so she was willing to spend total $ 28 for cliff bars & jug which she bought for $ 13

so her consumer surplus is $ 28-$ 13= $ 15

4. she will not buy anything as price per cliff bar & jug of choclate milk is higher then she is willing to pay.