Intermediate Microeconomics: A Modern Approach, Seventh Edition

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ECONOMICS 300 QUIZ 3 SPRING 2005 PLEDGE:____________________________ NAME:______________________________ (9) Mike T, lunatic /cannibal/part-time boxer, spends his money on random pills (R) and visits to the funny farm (F). Mike’s utility function is: U(R, F) = R 1/3 F 2/3 a. Suppose that R costs $4,000 and F costs $10,000. Write down an equation for Mike’s income expansion path. b. Plot some specific points and draw Mike’s income expansion path on the graph below. c. Briefly describe what the Income Expansion Path tells you.
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Unformatted text preview: d. Suppose now that you do not know the prices of R and F. Write down an equation that describes the quantity of trips to the funny farm as a function of income and the prices. e. Suppose that Mike’s income is $400,000. Plot some specific points and draw his demand curve for trips to the funny farm on the graph below. e. If P F is $2000, and m is $300,000, how many trips to the funny farm will Mike purchase?...
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