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In the economy of Mungo, discussed in your workbook, there is a third person called Ike. Ike has a red income of 40 and a blue income of 10. (Recall that blue prices are 1 bcu [blue currency unit] per unit of ambrosia and 1 bcu per unit of bubblegum. Red prices are 2 rcus [red currency units] per unit of ambrosia and 6 rcus per unit of bubblegum. You have to paytwice for what you buy, once in red currency, once in blue currency.) If Ike spends all of his blue income, but not all of his red income, then it must be that:
(a) he consumes at least 5 units of bubblegum.
(b) he consumes at least 5 units of ambrosia.
(c) he consumes exactly twice as much bubblegum as ambrosia.
(d) he consumes at least 14 units of bubblegum.
(e) he consumes equal amounts of ambrosia and bubblegum.
Use the B/C method to determine which should be selected at a discount rate of 0.75% per month over a 6-year study period.
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