1. (8 points) Suppose you have $300 to spend on either Baseballs (B) or Baseball
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Question
1. (8 points) Suppose you have $300 to spend on either Baseballs (B) or Baseball Gloves (G). Baseballs cost $12 each and Gloves cost $60 each. Using a graph, illustrate your budget constraint. Please put the number of Baseballs on the vertical axis and the number of Gloves on the horizontal axis. What is the Marginal Rate of Transformation between Baseballs and Gloves?
2. (18 points) For each of the following situations, use a graph to indicate the given bundle and accurately draw the indifference curve that goes through that bundle. Be sure to label you graph carefully and accurately. In all cases put the amount of good X on the horizontal axis, and the amount of good Y on the vertical axis.
a) The consumers utility function is given by U(X,Y) = X*Y^2, and the given bundle is X = 16 and Y = 2.
b) The consumers utility function is given by U(X,Y) = MIN(3X, Y), and the given bundle is X = 1 and Y = 4.
c) The consumers utility function is given by U(X,Y) = 3X + Y and the given bundle is X = 4 and Y = 3.
3) (24 points) For each of the following situations, find the consumers optimal bundle. Be sure to show your work. Also, for each case, draw the consumers budget constraint, indicate the optimal bundle on the graph, and accurately draw the indifference curve that runs through the consumers optimal bundle.
a) U(X,Y) = X^2 Y. The consumer has $24 to spend and the prices of the goods are PX = $2 and PY = $4. Note that the MUX = 2XY and the MUY = X^2.
b) U(X,Y) = MIN(2X,Y). The consumer has $60 to spend and the prices of the goods are PX = $2 and PY = $2.
c) U(X,Y) = 2X + Y. The consumer has $40 to spend and the prices of the goods are PX = $4 and PY = $1.
Explanation / Answer
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