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Unformatted text preview: maximize utility, will the marginal rate of substitution of peaches for avocados be the same for consumers in both states? If not, which will be higher? Solution a. The indifference curve with a utility of 800 has the equation 10DF = 800, or D = 80/F. To plot it, find combinations of D and F that satisfy the equation (such as D = 8 and F = 10). Draw a smooth curve through the points to plot the indifference curve, which is the lower of the two on the graph to the right. The indifference curve with a utility of 1200 has the equation 10DF = 1200, or D = 120/F. Find combinations of D and F that satisfy this equation and plot the indifference curve, which is the upper curve on the graph. b. If Jane spends all of her budget on domestic travel she can afford 40 days. If she spends all of her budget on foreign travel she can afford 10 days. Her budget line is 100D + 400F = 4000, or D = 40 4F. This straight line is plotted in the graph above. c. 2....
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This note was uploaded on 03/21/2010 for the course ECO 303 taught by Professor Yunshanchan during the Fall '08 term at SUNY Stony Brook.
- Fall '08