Diana's utility function for consuming apples (Xa) and Bananas (Xb) is U(Xa,Xb) = XaXb.

Suppose the prices of apples is $1, bananas $2, and her income is $40.

1. 1. On a graph with bananas on the y-axis, use blue ink to draw Bianca’s budget line.With red ink, plot an indifference curve that gives her a utility level of 150. Using black ink, plot an indifference curve that gives her a utility level of 300.
2. 2. Can Bianca afford any bundles that give her utility of 150? Can she afford any bundles that give her utility of 300?
   3. On your graph, mark a point that gives Bianca higher utility than 150 that she can afford. Label that point A.
   4. Write an equation that implies that Bianca’s budget constraint is tangent to her indifference curve at the point (?1, ?1).
3. 5. Find the best bundle that Bianca can afford and label it E on your graph. How many apples and bananas is Bianca consuming at this point?

Answer rating: 100% (QA)

Budget Line Indifference Curves and Consumption Choices Budget Line Blue Ink Price of Apples Pa 1 Pr... View the full answer