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Justin likes to have chocolate chip cookies and milk for breakfast. When the price of a chocolate chip cookies is $1 and price of a glass of milk is $1, he consumes 10 chocolate chip cookies and 6 glasses of milk each week. Suppose the price of a chocolate chip cookies increases to $2. Consequently, Justin buys some of each of the two goods.

(a) What happens to the MRS at the point he chooses? Explain.

(b) Suppose when the price of cookies increases to $2, the bundle he purchases is 6 chocolate chip cookies and 4 glasses of milk. Are chocolate chip cookies and milk substitutes or complements? Explain.

(c) From the numbers in the previous part, can we conclude that chocolate chip cookies are normal or inferior goods? What about milk? Explain.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M91725578

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