Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
-See Scenario 4.1. What is Daniel's income-consumption curve?

Question

Quizplus · Accepted Answer

Since the marginal utility of cake and donuts are equal to the quantity of the other good, we can assume that Daniel will allocate his income equally between the two goods to maximize his utility. With an income of $240 and both goods priced at $3, Daniel can afford to purchase a total of 80 units of either good. Therefore, his consumption bundle will be evenly split between cake and donuts, resulting in a linear income-consumption curve where Qc = Qd.

Scenario 4.1: Daniel Derives Utility from Only Two Goods, Cake (Qc) and (Qc)