11Quiz1Lau - (Ram)Elements of Microeconomics Quiz#1 Name...

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(Ram)Elements of Microeconomics Quiz #1 Name: Question 1: Lady Bieber eats only Bokchoy and Kumkwat. She has an income of $18. Bokchoy has a price of P B = $1 and Kumkwat has a price of P k = $3. Her preferences are represented by the following utility function: U = 10Q B + 40Q k where Q B and Q k are her consumption of Bokchoy and Kumkwat. (a) On the graph below, draw the budget constraint of LB. Put Kumkwat on the horizontal axis and Bokchoy on the vertical axis. Label the budget constraint. (b) Her preferences can be described as such that: (Circle the correct answer.)
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I. Bokchoy and Kumkwat are perfect substitutes II. Bokchoy and Kumkwat are consumed in fixed proportions III. Her indifference curves exhibit diminishing marginal rate of substitution between Bokchoy and Kumkwat. (c) At these prices, utility per dollar spent on Bokchoy is _____ utils (with "util" as a unit) and utility per dollar spent on Kumkwat is _____ utils. (d) LB's optimal consumption bundle is _____ Bokchoy and _____ Kumkwat.
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