What is marys optimal consumption bundle

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Assignment: Mary's preferences can be represented by U (x, y) = min{x, y}, where x is pair of earrings and y is dollar to spend on other things. Price of earrings, px is $2 and py is $1. Her income is $12.

Part a: What is Mary's optimal consumption bundle?

Part b: Now, the price of earrings rises to $3. What is her optimal bundle now?

Part c: What bundle would Mary choose if she faced the original prices and had just enough income to reach the new indifference curve? What would be the maxi- mum amount that Mary would pay to avoid the price increase?

Part d: What bundle would Mary choose if she faced the new prices and had just enough income to reach her original indifference curve? By how much Mary's original income would have to raise in order for her to be as well-off as she was with her original bundle?

Reference no: EM133327639

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