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Shelly purchases milk and cookies at the local supermarket. She has regular shaped strictly convex indifference
(a) α = 2. β = 2. γ = 2. δ = 2.
(b) Keeping milk on the horizontal axis, provide a diagrammatic representation of Shelly’s optimal bundle using a suitable graph with necessary details and briefly explain your work. please provide diagram here .
(c) Suppose now that the
(d) Suppose now that Shelly’s income changes from Y to Y + 100(γ − 1.5), while the prices of milk and cookies are still at their original levels (i.e., Pm = Pc = $4). Calculate the new level of income using the information above by substituting for the values of γ and Y . Reproduce your graph for part (b) and do further work on it to show how Shelly’s optimal bundle might adjust due to this income change. While creating your graph, make sure to illustrate any substitution effect and/or income effect as applicable and also the total effect of the income change. Explain your work.
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