Suppose that tea and sugar are perfect complements and that a consumer will only consume 1...

Suppose that tea and sugar are perfect complements and that a consumer will only consume 1 cup of tea with 2 cubes of sugar. The price of tea is $2/cup. (A fraction of an unsweetened cup of tea would cost that same fraction of $2). The price sugar is $0.25 per cube. A consumer has set aside $25 to spend on sweetened tea each week. Graphically depict and identify the set of feasible consumption, the budget line and its horizontal and vertical intercepts, and 2 indifference curves, including the utility-maximizing indifference curve. Indicate graphically and numerically the optimal combination of tea and sugar.

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Expert Solution

FOR UTILITY 20 TABLE IS AS SHOWN

X1	10	10	15	100	10
X2	20	25	20	20	500

FOR UTILITY 10 TABLE IS AS SHOWN

X1	5	10	7	15	5
X2	10	10	10	10	20

SHADED GREY AREA AND THE POINTS ON THE BUDGET LINE IS THE SET OF FEASIBLE CONSUMPTION POINT

Rahul Sunny answered 1 year ago

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