Econ 256Intermediate MicroeconomicsProfessor Ranganath MurthyBucknell University, Summer 2005PROBLEM SET 3Due June 22, 2005Make sure you use the graph paper provided in class. Your graphs should be accurate.I neglected to mention that the utility function we used in class (FCU=) belonged to Jane. I borrowed the problem from another textbook. Consider now, Tarzan’s utility function—a faint attempt at humor here! The utility that Tarzan receives by consuming food F and clothing C is given by the utility function FCU2=.(a)In Panel A, draw the indifference curvesassociated with the utility levels of 12, 24, and 48. Are the indifference curves strictly convex?(b) Suppose that food costs $1 a unit, and clothing $3 a unit, i.e., PF= $1 and PC= $3. Tarzan has $12 to spend on food and clothing. Write the budget equation. In Panel A, graph the budget linethat he faces, and label it B2.(c)What is the utility-maximizing choice of food and clothing? Label the optimal point E2.(d) Suppose that food now costs $2, other things being the same.
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