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Unformatted text preview: PROBLEM ROBLEM ROBLEM ROBLEM SET ET ET ET 3 Due: Monday, February 16th Please write as neatly as possible and circle all of your final answers. Chapter 4 Questions : 1. The utility that Ann receives by consuming food F and clothing C is given by U(F, C) = FC + F. Food costs $1 a unit, and clothing costs $2 a unit. Ann’s income is $22. a. Ann is currently spending all of her income. She is buying 8 units of food. How many units of clothing is she consuming? b. Draw the indifference curve associated with a utility level of 36 and the indifference curve associated with a utility level of 72. Are the indifference curves bowed in toward the origin? c. Using algebra, find the utility-maximizing choice of food and clothing. d. What is the marginal rate of substitution of food for clothing when utility is maximized? e. Does Ann have a diminishing marginal rate of substitution of food for clothing? 2. Dave currently consumes 10 hot dogs and 6 sodas each week. At his current consumption basket, his marginal utility for hot dogs is 5 and his marginal utility for sodas is 3. If the price of one hot dog is $1 and the price of one soda is $0.50. and the price of one soda is $0....
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- Spring '07
- Utility, Ann