R2) The only fruits Dana buys are apples (x) and/or berries (y). She spends $30 on fruits per month. Her utility for fruits is given by u= 4y+xy, with marginal utilities MU. y and MU 4+x. The price of apples is P=$1 and the price of berries is Py = $2. a) Draw her budget line (BL) in a diagram. Show the calculations needed to do so. (Your graph does not need to have accurate scale- simply indicate the relevant values in each axis of the graph). b) In the same diagram, draw her indifference curve (IC) for a utility level of 100. Show the calculations needed to do so. (Hint: Find the combinations on the IC for x=1, x=6, x=16). c) Graphically (without using the mathematical method), find her optimal choice (x*y*). Explain in words how we figure out the optimal choice using the budget line and indifference curves only. (Answer for part (c): approximately (x.y")=(13,8.5))

R2) The only fruits Dana buys are apples (x) and/or berries (y). She spends $30 on fruits per month. Her utility for fruits is given by u= 4y+xy, with marginal utilities MU. y and MU 4+x. The price of apples is P=$1 and the price of berries is Py = $2. a) Draw her budget line (BL) in a diagram. Show the calculations needed to do so. (Your graph does not need to have accurate scale- simply indicate the relevant values in each axis of the graph). b) In the same diagram, draw her indifference curve (IC) for a utility level of 100. Show the calculations needed to do so. (Hint: Find the combinations on the IC for x=1, x=6, x=16). c) Graphically (without using the mathematical method), find her optimal choice (xy). Explain in words how we figure out the optimal choice using the budget line and indifference curves only. (Answer for part (c): approximately (x.y")=(13,8.5))

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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