Homework Answers
Options (1) and (4).
The optimal bundle will exhaust the budget. From budget line it's seen that price of P is 2 and price of R is 5.
Total cost (TC) = 2P + 5R
For option (1), TC = 2 x 0 + 5 x 8 = 0 + 40 = 40 (Exhausts budget)
For option (2), TC = 2 x 10 + 5 x 5 = 20 + 25 = 45 (Exceeds budget)
For option (3), TC = 2 x 15 + 5 x 3 = 30 + 15 = 45 (Exceeds budget)
For option (4), TC = 2 x 15 + 5 x 2 = 30 + 10 = 40 (Exhausts budget)
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