Utility function of a consumer for playing football every week is given as U(t) = 11t-2t^2 where t is measured in hours and rent of playing football on a court is $2.5 per hour. Explain with a diagram showing relationship between the budget of the consumer and number of hours in order to maximise his consumer surpl

Utility function of a consumer for playing football every week is given as U(t) = 11t-2t^2 where t is measured in hours and rent of playing football on a court is $2.5 per hour. Explain with a diagram showing relationship between the budget of the consumer and number of hours in order to maximise his consumer surpl

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter6: Consumer Choice And Demand

Section: Chapter Questions

Problem 15PAE

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EXERCISE 7 Aisha is considering how to allocate the next 6 hours of her free time. She could choose between leisure (L) and helping her neighbour with the house chores. If she decides to help her neighbour, she is going to get paid at £25 per hour, which she can then spend on her favourite pizza (P). Suppose the price of pizza is £12.50. Aisha's preferences for leisure and pizza are given by the following utility function: U(L, P) = 3L + P. (MU₁ = 3, MUp = 1). a) Write down Aisha's budget equation and draw the corresponding budget line. Clearly label the axes and calculate the coordinates of the points of intersection of the budget line with each axis. b) Calculate Aisha's marginal rate of substitution between leisure and pizza. Explain the concept of MRS and interpret the figure obtained. c) Find Aisha's optimal consumption bundle, both algebraically and graphically. Explain your reasoning. d) Would Aisha's optimal choice change if she could get a discount on her pizza purchases so…
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