Question: Assume you have a linear utility function (i.e. constant marginal utility) for food and entertainment. Your preferences are such that you value a unit of

  1. Assume you have a linear utility function (i.e. constant marginal utility) for food and entertainment. Your preferences are such that you value a unit of food half as highly as a unit of entertainment. Your budget is $80 and the price of a unit of food is $1 as is the price of a unit of entertainment. Given this information, answer the following questions.

  1. Use a graph to illustrate your utility maximizing behavior. Briefly explain this graph.

  1. Could your behavior be different if you had a utility function that reflected decreasing marginal utility for both food and entertainment? Explain using words and a graph.

  1. Assuming the original linear utility function, use a graph and words to explain what would happen to your demand for entertainment if your budget was cut in half.

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