Jane receives utility from days spent travelling on vacation domestically (D) and days spent travelling on vacation in foreign country (F),as given by the utility function U(D,F)=10F.In addition ,the price of a day spent travelling domestically is $100,the price of a day spent travelling in a foreign country is $400,and Jane`s annual travel budget is $400.
a)Illustrate the indifference curve associated with a utility of 800 and the indifference curve associated with utility of 1200.
b)Graph Jane`s budgets line on same graph
c)Can Jane afford any of the bundles that give her a utility of 800?What about a utility of 1200?
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Expert's answer
2012-10-19T09:11:37-0400
The indifference curve with a utility of 800 has the equation 10DF=800, or DF=80. Choose combinations of D and F whose product is 80 to find a few bundles. The indifference curve with a utility of 1200 has the equation 10DF=1200, or DF=120. Choose combinations of D and F whose product is 120 to find a few bundles. If Jane spends all of her budget on domestic travel she can afford 40 days. If she spends all of her budget on foreign travel she can afford 10 days. -Can Jane afford any of the bundles that give her a utility of 800? What about a utility of 1200? Yes she can afford some of the bundles that give her a utility of 800 as part of this indifference curve lies below the budget line. She cannot afford any of the bundles that give her a utility of 1200 as this whole indifference curve lies above the budget line.
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