Econ 256
Intermediate Microeconomics
Professor Ranganath Murthy
Bucknell University, Summer 2005
PROBLEM SET 3
Due June 22,
2005
Make 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 (
FC
U
=
) 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
FC
U
2
=
.
(a)
In Panel A, draw the
indifference curves
associated 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.,
P
F
= $1 and
P
C
= $3.
Tarzan has $12
to spend on food and clothing.
Write the
budget equation
. In Panel A, graph the
budget line
that
he faces, and label it
B
2
.
(c)
What is the
utilitymaximizing choice of food and clothing
?
Label the optimal point
E
2
.
(d) Suppose that food now costs $2, other things being the same.
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 Summer '05
 ??
 Economics, Microeconomics, Utility, Economics curves

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