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Now consider Jialan who is hosting a chocolate-tasting party. She has the following prefer- ences over...

Now consider Jialan who is hosting a chocolate-tasting party. She has the following prefer- ences over dark chocolate (D) and milk chocolate (M): U (D, M ) = min{3D, M } + 6 The price of an ounce of dark chocolate is $2 and the price of an ounce of milk chocolate is $1. Jialan has $45 to spend on chocolate. (a) (5) How much dark chocolate will Jialan buy? How much milk chocolate will Jialan buy? Label your answers D∗ and M∗ and draw a box around them. (b) (5) Show this solution graphically (label D∗ and M∗, the IC at the optimum, the budget line, and all axes and other relevant points). Put D on the horizontal axis. (c) (5) What is Jialan’s cross-price demand for milk chocolate? Give your answer as a function, M(PD) and draw a box around your answer. (d) (5) How would Jialan’s optimal bundle change if her preferences were instead given by: U (D, M ) = 3D + M + 6 Label your answers D∗ and M∗ and draw a box around them. (e) (5) Using the preferences in part (d), what is Jialan’s demand for milk chocolate? Give your answer as a function, M(PM) and draw a box around your answer.

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