2. Reuben and Robert have decided to learn to surf in Rincon, Puerto Rico. First, they must rent surf boards from the local surf shop, which offers the following pricing structure: The first two days of rental cost $10 per day; the next three days of rental cost $20 per day; additional days of rental beyond five are $30 per day.

a) If both Reuben and Robert have the same income of M=140, draw their individual budget constraint with the composite good (Y) on the vertical axis and days of surf board rental (S) on the horizontal axis. Be sure to label enough points to fully characterize the shape of the budget constraint.

b) Reuben views 28 units of the composite good as a perfect substitute for one day of surf board rental, while Robert views 32 units of the composite good as a perfect substitute for one day of surf board rental. How many units of Y and S will both Reuben and Robert consume? Why? What is the marginal rate of substitution for both Reuben and Robert at their optimal bundle?

c) Suppose that the local surf shop decides to change its pricing structure so that additional days of surf board rental beyond five now cost $35 per day. How many units of Y and S will both Reuben and Robert consume under the new pricing structure? Why? Are Reuben and Robert better off, worse off, or equally well off under the new pricing structure? How do you know?