As described in Exercise 8.1, Lucy wants carpets and paintings for her office. Her company has given her a budget of $7,200 for this purpose. Persian carpets of the size that she wants can be purchased for $900 each and paintings from a local Native American artist cost $400 each.

a. Using Excel’s charting tool, draw Lucy’s budget constraint if her budget is $5,000. Use 0, 1, 2, 3, 4, and 5 carpets as possible quantities. Put carpets on the horizontal axis and paintings on the vertical axis.

b. Combining the information in the previous exercise with this exercise, use Excel to illustrate Lucy’s utility-maximizing solution given that her budget is $5,000, the price of a carpet is $1,000, and the price of a painting is $500.

Exercise 8.1

Lucy has just been promoted to a managerial position and given a new office. She is very fond of small Persian carpets and Native American paintings and wants to get some carpets and paintings for her office. Her utility function for carpets (x) and paintings (y) is given by
U(z, y) = √xy