Question

Suppose a consumer has budget of $120 per week to spend on food. Consumer can choose to eat at restaurants (R), in which case he spends about $20 per meal (P $20), or spend his money on All-Other-Food (PAOP $1) 2. a. Ilustrate consumer's budget line. Plot R on the horizontal axis. b. If consumer's utility function is U-R AOF, what will be his optimal bundle? What would be the value of his utility at optimal bundle? How much money will he have left for other food after spending part of the budget on restaurants? Recall from class that the slope of an indifference curve is utility is a simple product of quantities is MRS-X/Y (in our case MRS -AOF /R). Calculate the value of slope of an indifference curve along consumer's budget line at R-1, 3, 5, 7,9 (that would be her willingness to pay for the 1t, 3rd ets restaurant meal). Use this information to sketch consumer's demand for restaurant meals. Suppose consumer's budget increased (got a good job after graduating from college) to $200. Sketch the new optimum and contrast against the old. How will this increase in budget change consumer's willingness to pay for the 1t restaurant meal?.3d mealt? Suppose the price of restaurant meals increased to $30 (budget is back to $120. Sketch the new optimum. How will this increase in budget change consumer's willingness to pay for the 1" restaurant c. d. e. meal?... 30 meal? f. (Attempt) Suppose now that consumer's preferences changed - consumer is dating sormieone and willing to pick up the restaurant tab (sometimes)! That is, consumer's utility now is UER AOF and MRS 2"AOG/R. How will this change consumer's optimum (how many R's and how many AOFs)? Will this affect consumer's willingness to pay for the 1f restaurant meal?

Answer 1

budgetじn-home R. 6 1 35 the w AOF 52074