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 coop
clothing:
coop
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 coop option:
If she joins the coop 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 coop budget line intersects the original budget
line at the bundle (30,15).
However, the coop budget line has a slope = 9/6 = 1.5, making it steeper.
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 Fall '06
 WISSINK
 Economics, Supply And Demand, Harshad number, coop budget line

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