Please see below. The two pictures go together as I couldn't get it all in one picture. As president of the nation of Starbook, Fred Folger earns$200 per week, which he spends on books and coffee. Thebudget constraint shown on the graph shows how much of the120A.two goods Folger can afford. Move point A to mark the110combination of the two goods he will choose to maximizehis utility.100908070How much does a book cost?605040cost of one book: $306.5.2010Budget constHow much does a cup of coffee cost?204.810121416182Bookscost of one cup of coffee: $When President Folger leaves office next month, he will goback to his job as chief bean buyer for the Starbook CoffeeCompany. His income will fall to $150 per week.Adjust the budget constraint to show how much Folger canCoffee (cups) ie glapnWS IOW IIMUCII OI IC120two goods Folger can afford. Move point A to mark theA.110combination of the two goods he will choose to maximize100his utility.9080How much does a book cost?70605040cost of one book: $302010How much does a cup of coffee cost?Budget constra4.68101214161820Bookscost of one cup of coffee: $When President Folger leaves office next month, he will goback to his job as chief bean buyer for the Starbook CoffeeCompany. His income will fall to $150 per week.Adjust the budget constraint to show how much Folger canafford to buy after his income changes. Place point B at hisnew utility-maximizing combination of books and coffee.Coffee (cups)

Answered: two goods Folger can afford. Move point…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Please see below. The two pictures go together as I couldn't get it all in one picture.

As president of the nation of Starbook, Fred Folger earns
$200 per week, which he spends on books and coffee. The
budget constraint shown on the graph shows how much of the
120
A.
two goods Folger can afford. Move point A to mark the
110
combination of the two goods he will choose to maximize
his utility.
100
90
80
70
How much does a book cost?
60
50
40
cost of one book: $
30
6.
5.
20
10
Budget const
How much does a cup of coffee cost?
20
4.
8
10
12
14
16
18
2
Books
cost of one cup of coffee: $
When President Folger leaves office next month, he will go
back to his job as chief bean buyer for the Starbook Coffee
Company. His income will fall to $150 per week.
Adjust the budget constraint to show how much Folger can
Coffee (cups)

ie glapn
WS IOW IIMUCII OI IC
120
two goods Folger can afford. Move point A to mark the
A.
110
combination of the two goods he will choose to maximize
100
his utility.
90
80
How much does a book cost?
70
60
50
40
cost of one book: $
30
20
10
How much does a cup of coffee cost?
Budget constra
4.
6
8
10
12
14
16
18
20
Books
cost of one cup of coffee: $
When President Folger leaves office next month, he will go
back to his job as chief bean buyer for the Starbook Coffee
Company. His income will fall to $150 per week.
Adjust the budget constraint to show how much Folger can
afford to buy after his income changes. Place point B at his
new utility-maximizing combination of books and coffee.
Coffee (cups)

Expert Solution

Step 1

Answer:

According to the above figure, point A lies where the consumer consumes 6 books and 50 cups of coffee.

$C o s t o f o n e b o o k = \frac{I n c o m e}{x - i n t e r c e p t} C o s t o f o n e b o o k = \frac{200}{16} C o s t o f o n e b o o k = $ 12.5$

Cost of one book: $12.5

$C o s t o f o n e c u p o f c o f f e e = \frac{I n c o m e}{y - i n t e r c e p t} C o s t o f o n e c u p o f c o f f e e = \frac{200}{80} C o s t o f o n e c u p o f c o f f e e = $ 2.5$

Cost of one cup of coffee: $2.5

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