THE ANSWERS ARE HIGHLIGHTED I would like to know how all the step on how my prof

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THE ANSWERS ARE HIGHLIGHTED I would like to know how all the step on how my professor got the answers in other words please show me the step I would like to see how to get to the answer. show all the steps and formula he used. show all steps for questions 1 a,b,c and 2 a,b,c . thank you

II. Short Answer: Answer the following four questions. For credit you must show your work and/or explain yourself fully. Record your answers in the blue book (10pts. Each). 1. Boo spends all of her income on tacos. There are only two varieties of tacos: chicken and pork. You could write her utility function as U = 3P + C. Pork tacos cost $4, chicken tacos cost $1.00, and she has an income of $40. a. What is Boo's opportunity cost of buying a pork taco (2pts)? (P/P) 4. The opportunity cost of one pork taco is 4 chicken tacos. b. How many chicken tacos is Boo willing to pay for an additional pork taco (3pts)? MRS MU,/MU.)-3, so Boo is always will o pay 3 chicken tacos for one pork taco. c. Derive Boo's optimal consumption bundle. (Hint: reasoning, diagrams, and/or algebra (Spts). derive your answer by using your economic nd pork tacos as perfect substitutes: she is always willing to (PPP,)-4 > MRS. = 3 B00 treats chicken a pay three chicken tacos for one pork taco, regardless of how many tacos she has. However, every time buys one pork taco, she is giving up four chicken tacos. If she is only willing to trade the chicken tacos for a pork taco, but must give up four chicken tacos for every pork taco, every time she taco she is left with a worse bundle. For this reason, she should only buy chicken tacos, and her best bundle is U(P*C(0, 40) buys a pork 2. Assume that a consumer can just afford the bundle ()-(8,5) and the bundle (,y-01, 4. a. What is the relative price of x (3pts)? (P/P)4-5)y11-8) -1/3 b. If the P, 2, how much income does this consumer have (3pts)? Ps-2 and (PJP) =(13), then, P,-6 and M-46 c. Find the equation that describes this person's budget line (4pts). 2x + 6y 46

Explanation / Answer

1.

a). Here there are 2 goods one is “Chicken(C)” and the other one is “Pork(P)”. So, if the price of “C” is “1” and the price of “P” is “4” so, the budget line is given by, “4*P+ 1*C = 40”. So here the absolute slope of the budget line is “Pp/Pc=4/1=4”. So, the “opportunity cost” is nothing but the absolute slope of budget line, because it shows how “one goods” you have to forgo if we want to increase another goods by 1 unit.

b).

Here the utility function of the “Boo” is given by, “U = 3*P + C”, MUp=3 and MUc=1.

So MRS=MUp/MUc=3, here “MRS” measure how much “C tacos” “Boo” want to forge to increase 1 unit of “P tacos” in order to get the same level of utility. So, the required answer is “3”.

c). Here the utility of “Boo” is “perfect substitute”, => “C” is to totally substitutable to “P”. So, here “Boo” will totally substitute to one good cost and utility. So, here “Pk/Pc=4” and “MRS=3”, => “Pk/Pc > MRS”, => “C” is more efficient to increase utility, in other words “P” is 4 time expensive to “C”, => we can purchase either “1 unit of P” or “4 units of C” both are same, now 1 unit of P will given additional 3 utility on the hand additional 4 units of “C” will increase 4 units of utility, => “C” is more efficient to increase utility from both “cost” and “utility” view points. So, “Boo” will totally spend on “C”. So, the optimum consumption bundle is (P, C) = (0, 40).

2.)

a). Now, a typical consumer can afford the 2 given bundle => these 2 bundle are on the budget line, and the relative price is nothing but the slope of the budget line.

So, here we need to find out absolute value of “dY/dX”, => (4-5)/(11-8)=(-1)/3. So, absolute value of “-1/3” is “1/3”. So, Px/Py=1/3.

b). So, we got that “Px/Py=1/3”, => “Py = 3*Px = 6”. So, the value of the above bundle is the income, if (8, 5) be one bundle then “2*8+ 6*5=46”.

So, “M=46”.

c).

So, already get the slope of the budget line and we also have given 1 point. So, the budget line be, Y = (-1/3)*X + c”. Where “c” be a constant, here we need to find out the value of “C”by using the given point.

So, at (8, 5), the budget line is given by, 5 = (-1/3)*8 + c, => c=8/3+5=(8+15)/3=23/3.

So, the now the equation of the budget line be, “Y=(-1/3)*X + 23/3, => 3*Y + X = 23, => 6*Y + 2*X = 46.

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