2. Bill gets utility from consuming food (F) and clothing (C) represented by the

Question

2. Bill gets utility from consuming food (F) and clothing (C) represented by the following utility
function: U(F,C) = FC + F. The price of food is $1 per unit and the price of clothing is $2 per
unit. Bill’s income is $22.
A. Graph Bill’s budget constraint placing clothing on the vertical axis and food on the horizontal.
B. Draw two indifference curves on the graph above associated with Utility = 36 and Utility = 72. Are
your indifference curves convex or concave?
C. Find the utility maximizing choice of food and clothing.
D. What is the marginal rate of substitution of food for clothing when utility is maximized?
E. Determine if Bill has diminishing marginal rate of substitution of food for clothing.

Explanation / Answer

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