Question

4. Indifference curves and utility maximization Teresa is in a band and likes to advertise upcoming shows using flyers she posts around the city. Making one black-and-white flyer costs $0.05, and making a flyer in color costs $0.20. Teresa budgets $40.00 for making flyers each month. The following graph shows three of Teresa's indifference curves for the number of black-and-white and color flyers that she makes. Use the green line (triangle symbol) to plot Teresa's budget constraint. Then, place the black point (plus symbol) on thè graph to indicate Teresa's optimal choice given that budget constraint. 1000 Optimum 0 Type here to search 1000 Budget Constraint 600 Optimum 500 o 25 50 75 100 125 150 175 200 225 250 COLOR FLYERS in black and white per flyer in color. At the optimum that you indicated on the graph, Teresa's marginal rate of substitution is equal to Continue without saving 0 Type here to search

Answer 1

since the utility function is unknown, we cannot determine the MRS by conventional methods. to do this problem we need to see where our budget constraint is tangent to any of the indifference curve. the point of tangancy gives of the utility maximizing bundle and thus the MRS is found out by finding the slope of IC at that bundle. thus you can solve it by drawing budget line, finding the point of tangancy and calculating slope at that point