Assume you can work as many hours per day as you wish at £20 per hour, after tax. You have no other income. You have no ability to borrow or lend. a) Show how this information can be used to illustrate a feasible set, showing the choice between leisure time per day on the x-axis, and general consumption on the y-axis. Label the axes and intercepts. Draw some indifferences curves and show where the optimal point would be.

Assume you can work as many hours per day as you wish at £20 per hour, after tax. You have no other income. You have no ability to borrow or lend. a) Show how this information can be used to illustrate a feasible set, showing the choice between leisure time per day on the x-axis, and general consumption on the y-axis. Label the axes and intercepts. Draw some indifferences curves and show where the optimal point would be.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 6SQ

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Consider a utility function: U (F,C) = FC so MU_F = C and MU_C = F Suppose as Case 1, Total income is $100 and per unit prices of Food (F) and Cloth (C) are $2 and $10, respectively, then: a) What is the value of MRS at the optimal point and what does this value mean? b) What is the optimal consumption bundle i.e (F*,C*)? c) Also plot the budget line and clearly depict the point of optimality in the F (x-axis)-C (y-axis) space Case # 2 assuming if income increases to $120, holding all else the same, do the same analysis (parts a-c) and contrast your answers to Case 1. For part c, you should draw old (Case 1) and new (Case 2) budget lines/point of optimality.