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PS6.3(2)

# PS6.3(2) - Answer Key for Problem Set 6 ECON 211 Fall 2009...

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Answer Key for Problem Set 6 ECON 211, Fall 2009 Due on Friday, October 16 Part 1: Graded Questions Problem 1: 30 points Ralph and Lauren are talking about how much they like going to the gym and how much they like eating out at their favorite restaurant and they regularly do some of each. A session at the gym costs the same as a meal at the restaurant. Ralph says that, for his current consumption of gym sessions and restaurant meals, he values 1 more meal twice as much as he values 1 more session at the gym. Lauren is studying economics, and she tells him that his current consumption bundle cannot be optimal. a. (10 points) Draw a diagram of Ralph’s budget line and the indifference curve that he is on by making his current consumption choice. Place restaurant meals on the horizontal axis and gym sessions on the vertical axis. (Hint: What is the MRS of meals in place of gym sessions?) b. (10 points) Is Lauren right? Why or why not? c. (10 points) How should Ralph adjust his consumption so that it is optimal? Illustrate an optimal choice in your diagram. Problem 2: 35 points

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PS6.3(2) - Answer Key for Problem Set 6 ECON 211 Fall 2009...

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