Question: Allie has the following utility function over purses c and leisure l. U(l, c) = l + 5c One way to think of her
Allie has the following utility function over purses c and leisure l. U(l, c) = l + 5c One way to think of her utility is that one purse will give her as much utility as 5 hours of leisure. She can acquire these goods in infinitely divisible units. For example, she can purchase half a purse or take a tenth of an hour of leisure. a. What type of utility function is this? (1 pt) b. Complete the table below to determine how different bundles of purses c and leisure & influence Allie's utility. (5 pts) U 30244WOHNOVE l 0 1 5 0 5 10 0 5 15 0 10 20 c. Graph Allie's utility over leisure (x-axis) and purses (y-axis). Make sure you graph four levels of utility. Label each indifference curve with the utility level (e.g., U5, U = 10, U3 = 15, U4 = 20). (5 pts) d. Below, you will be asked to compare two bundles of goods (, c). State which bundle Allie will pick, or if Allie will be indifferent between the two bundles. Most importantly, explain your answer. Hint: Use the graph from part c. (1 pt each, 0.5 for correct answer and 0.5 for explanation) i. Bundle A: (0, 1) vs. Bundle B: (3,0) ii. Bundle A: (0, 1) vs. Bundle B: (4, }) Bundle A: (0,2) vs. Bundle B: (15, 0) iv. Bundle A: (0,4) vs. Bundle B: (10,2) iii.
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a This is a linear utility function Utility increases linearly with increa... View full answer
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