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191ps2sol

# 191ps2sol - ECON191 Spring 2010 Outline of suggested...

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1 ECON191 Spring 2010 Outline of suggested solutions to Problem Set 2 1) Answer: False 2) Pindyck, Rubinfeld and Koh, p. 105, # 15. a) The indifference curve with a utility of 800 has the equation 10DF=800, or DF=80. Choose combinations of D and F whose product is 80 to find a few bundles. The indifference curve with a utility of 1200 has the equation 10DF=1200, or DF=120. Choose combinations of D and F whose product is 120 to find a few bundles. 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. c) Yes she can afford some of the bundles that give her a utility of 800 as part of this indifference curve lies below the budget line. She cannot afford any of the bundles that give her a utility of 1200 as this whole indifference curve lies above the budget line. At restaurant A, he spends \$100. At B, he also spends \$100. The diagram shows his budget constraints at A and B. When he is at restaurant A, both a and b (it costs \$80 in restaurant A) are feasible, but he has chosen a . Therefore, he has revealed his preference: he prefers a to b .

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