Rita has a budget of £600 to spend on theatre tickets (X) and on restaurant meals (Y). Each theatre ticket is priced at £60 (denoted by Px), whereas the price of a restaurant meal (P;) is £30. Her utility function is U(X,Y) = 8VX + Y, which gives marginal utilities MUx = and MUy = 1. Her indifference curves are convex to the origin. (a) Find the equation of Rita's budget line. Explain how Rita decides to spend her budget with the aid of a diagram. (b) Find the number of theatre tickets and restaurant meals Rita purchases. (c) Rita receives a pay rise and so increases her budget for theatre tickets and restaurant meals to £660. Find the number of theatre tickets and restaurant meals Rita now purchases.
Rita has a budget of £600 to spend on theatre tickets (X) and on restaurant meals (Y). Each theatre ticket is priced at £60 (denoted by Px), whereas the price of a restaurant meal (P;) is £30. Her utility function is U(X,Y) = 8VX + Y, which gives marginal utilities MUx = and MUy = 1. Her indifference curves are convex to the origin. (a) Find the equation of Rita's budget line. Explain how Rita decides to spend her budget with the aid of a diagram. (b) Find the number of theatre tickets and restaurant meals Rita purchases. (c) Rita receives a pay rise and so increases her budget for theatre tickets and restaurant meals to £660. Find the number of theatre tickets and restaurant meals Rita now purchases.
Chapter25: Monopoly
Section: Chapter Questions
Problem 13E
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