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.

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 2 years ago

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