Indifference Curve Analysis

2.2. Try It

Allison's preference for donuts or coffee is mapped by an indifference curve with coffee on the horizontal axis and donuts on the vertical axis. At her utility-maximizing consumption bundle the marginal rate of substitution is 5 donuts for a single coffee. Which point along the indifference curve shown below is her most likely utility-maximizing choice?

• Point C
• Point A
• Point B

Peggy returns from trick-or-treating with 50 pieces of chocolate and 50 pieces of caramel. Last year she returned with only 5 pieces of chocolate but over 300 pieces of caramel, yet she finds her stash of candy to be equally enjoyable this year as last. Which of the following statements must be true?

• Peggy always receives more utils eating chocolate than caramel.
• The only explanation for Peggy's indifference between this year and last is that her tastes have fundamentally changed. She no longer enjoys caramel as much as she did before.
• Peggy's indifference curve of chocolate and caramel is convex.