A) -Rhea's MRS is unaffected by the price change, -Rhea's optimal budget decision rule is unaffected by the price change, -Rhea's budget constraint is unaffected by the price change, - All of the above are changed B) -Rhea buys less milk at her new consumer equilibrium, -Rhea buys more milk at her new consumer equilibrium, -Rhea buys the same amount of milk at her new consumer equilibrium, -Rhea buys no milk at her new consumer equilibrium C) -Rhea buys less bread at her new consumer equilibrium, -Rhea buys more bread at her new consumer equilibrium, -Rhea buys the same amount of bread at her new consumer equilibrium, -Rhea buys no bread at her new consumer equilibrium D) -Her utility increases, -Her utility decreases, -Her utility is unchanged, -Her utility could increase or decrease
A) -Rhea's MRS is unaffected by the
B) -Rhea buys less milk at her new consumer equilibrium, -Rhea buys more milk at her new consumer equilibrium, -Rhea buys the same amount of milk at her new consumer equilibrium, -Rhea buys no milk at her new consumer equilibrium
C) -Rhea buys less bread at her new consumer equilibrium, -Rhea buys more bread at her new consumer equilibrium, -Rhea buys the same amount of bread at her new consumer equilibrium, -Rhea buys no bread at her new consumer equilibrium
D) -Her utility increases, -Her utility decreases, -Her utility is unchanged, -Her utility could increase or decrease
![Rhea is determining how many gallons of milk (M) and loaves of bread (B) to purchase. Use the information in italics to answer the bolded question below:
- *Rhea’s marginal utility function for milk:*
\[
MU_M = 0.5M^{-\frac{1}{2}} B^{\frac{1}{2}}
\]
- *Rhea’s marginal utility function for bread:*
\[
MU_B = 0.5M^{\frac{1}{2}} B^{-\frac{1}{2}}
\]
- *Rhea has $60 to spend on bread and milk.*
- *The price of milk (P_M) is now $2/gallon of milk, which is $1 less per gallon than the previous price.*
- *The price of bread (P_B) is $1/loaf of bread.*
- *For the sake of computation, assume that bread is the horizontal axis good (i.e., good X) and milk is the vertical axis good (i.e., good Y).*
Let's say the price of milk drops to $2.00/gallon.
**Which of the following components of Rhea's consumer choice problem are unaffected by the decrease in the price of milk?**
[Select]
**Compared to when P_M = $3/gallon, how does the decrease in the price of milk impact Rhea's optimal consumption of milk at her new consumer equilibrium?**
[Select]
**Compared to when P_M = $3/gallon, how does the decrease in the price of milk impact Rhea's optimal consumption of bread at her new consumer equilibrium?**
[Select]
**How does the decrease in the price of milk impact Rhea's utility?**
[Select]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F314f0635-1dd9-4d26-9205-7f03c7b2e19c%2Fa720cef2-8c35-4372-9606-30b99f4e3862%2F4gwdibq_processed.jpeg&w=3840&q=75)
Here we have 2 goods milk (M) and breads (B). And the corresponding marginal utilities are:
MU_M (marginal utility of milk) = 0.5M-1/2B1/2
MU_M (marginal utility of bread) = 0.5B-1/2M1/2
Income = $60
P(M) {price of milk} = 3
P(B) {price of bread} = 1
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