Jane consumes only apples and chocolate. She is always willing to trade 1piece of chocolate for exactly 3 apples. Her income is $200. She can buy apples for $1 each and chocolate for $2 per piece.
a. To Jane, apples and chocolate are (circle 1):
- Perfect complements
- Perfect substitutes
- Neither perfect complements nor perfect substitutes
- Not enough information to tell
b. On the graph below, draw Jane’s budget constraint and several of her indifference curves. Illustrate her utility-maximizing bundle.
c. Jane’s local apple orchard has had a huge harvest. To try to sell more apples, they offer Jane a quantity discount. She still pays $1 per apple for the first 100 apples, but she can buy any additional apples beyond that for only $0.40 each.
Illustrate Jane’s new budget constraint and her new utility-maximizing bundle.