Q2: Jameela’s monthly income, Rs. 400 is spent on her consumption bundle that is made up of only two goods on which she allocates her entire income on: Orange Juice and Brown Rice.Suppose Orange juice costs Rs. 8 per pint and Brown rice cost Rs. 4 per kg. Plot her budget line (BL1) on a fully labelled diagram, with Orange juice on the y-axis. Let the utility function of Jameela be defined by the equation U (O, R) = 2O + R. What combination of Orange juice and Brown rice should Jameela purchase to maximize her utility? (MUO = 2 and MUR = 1) Jameela’s grocery store is closing down their branch in the locality. For this they are running special offer on most grocery items. One of them is on Orange juice: if Jameela buys 20 kgs worth Brown rice (at Rs.4 per kg), she gets the next 10 kg rice bags absolutely free. However, this offer applies only to the first 20 kg bags worth of Brown rice that she buys. All bags of Brown rice, in excess of the first 20 kgs (excluding the offer worth of kgs) are still Rs. 4 per kg. Draw her modified budget line (BL2) on a new diagram and contrast with part (a). Imagine a severe climatic event disrupted all rice fields leading to mass crop damage. This led to Brown rice shortage and so raises the price of Brown rice to to Rs.8 per kg bag. The grocery store decides to ends its discount deal. What does her budget constraint look like now? Draw her modified budget line (BL3) on a new diagram and contrast with part (a) and (c). What combination of Orange juice and Brown rice maximizes Jameela’s utility given these new circumstances?

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Answered: Q2: Jameela’s monthly income, Rs. 400…

Micro Economics For Today

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Chapter6: Consumer Choice Theory

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Q2: Jameela’s monthly income, Rs. 400 is spent on her consumption bundle that is made up of only two goods on which she allocates her entire income on: Orange Juice and Brown Rice.

Suppose Orange juice costs Rs. 8 per pint and Brown rice cost Rs. 4 per kg. Plot her budget line (BL₁)on a fully labelled diagram, with Orange juice on the y-axis.

Let the utility function of Jameela be defined by the equation U (O, R) = 2O + R. What combination of Orange juice and Brown rice should Jameela purchase to maximize her utility? (MU_O = 2 and MU_R = 1)

Jameela’s grocery store is closing down their branch in the locality. For this they are running special offer on most grocery items. One of them is on Orange juice: if Jameela buys 20 kgs worth Brown rice (at Rs.4 per kg), she gets the next 10 kg rice bags absolutely free. However, this offer applies only to the first 20 kg bags worth of Brown rice that she buys. All bags of Brown rice, in excess of the first 20 kgs (excluding the offer worth of kgs) are still Rs. 4 per kg. Draw her modified budget line (BL₂) on a new diagram and contrast with part (a).

Imagine a severe climatic event disrupted all rice fields leading to mass crop damage. This led to Brown rice shortage and so raises the price of Brown rice to to Rs.8 per kg bag. The grocery store decides to ends its discount deal. What does her budget constraint look like now? Draw her modified budget line (BL₃) on a new diagram and contrast with part (a) and (c). What combination of Orange juice and Brown rice maximizes Jameela’s utility given these new circumstances?

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