ps4x101_s03_answer - Econ 101 - Spring 2003 - Wissink...

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Page 1 Q1 1) food 0 40 60 6 35 51 12 30 42 18 25 33 24 20 24 30 15 15 36 10 6 42 5 -3 48 0 -12 clothing: no co-op clothing: co-op 0 10 20 30 40 50 60 0 10 20 30 40 50 60 70 (a) and (b) Column C Column D food clothing (a) See graph below. Note: If she has $480 dollars and buys 30 units of food she spends $300 on food. She has $180 to spend on clothing. She can afford 15 units of clothing. If she is a utility maximizer then her indifference curve should be tangent to the budget line at the bundle 30 food and 15 clothing. That means that the absolute value of the slope of the indifference curve, the MRS, at (30, 15) should be equal to the absolute value of the slope of the budget line, which is P F /P C = 10/12 = .83. So the MRS at (30,15) = .83. (b) Now with the co-op option: If she joins the co-op she pays a lump sum fee of $120 which leaves her with $360 to spend on food and clothing. Notice that when you draw the new budget line, the original bundle is still affordable: 30*$9 + 15*$6 = $360. So the co-op budget line intersects the original budget
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This note was uploaded on 03/27/2009 for the course ECON 1110 taught by Professor Wissink during the Fall '06 term at Cornell University (Engineering School).

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ps4x101_s03_answer - Econ 101 - Spring 2003 - Wissink...

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