Nora enjoys fish (F) and chips(C). Her utility function is U(C, F) = 2CF. Her income is B per month. The price of fish is Pf and the price of chips is P. Place fish on the horizontal axis and chips on the vertical axis in the diagrams involving indifference curves and budget lines.

(a) What is the equation for Nora’s budget line?

(b) The marginal utility of fish is MUf = 2C and the Marginal utility of chips is MUc= 2F. What is the marginal rate of substitution of fish for chips? Is it constant? What is its geometric equivalent? What is its interpretation?

(c) Derive the equation for an indifference curve belonging to Nora.

(d) Draw a diagram which represents the choices available to Nora, her preferences over these choices, and her optimum choices. What conditions must be satisfied for utility maximization?

(e) Show that the demand function for fish is given by F = B/2Pf and the demand function for chips is given by B/2Pc. What information does a demand function impart? Is there anything unusual about these demand functions?

(f) What is the equation for the inverse demand function for fish? Draw this on a graph. If income increases, what would happen to the demand for fish? Illustrate this on a graph

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a Noras budget line equation is PFF PCC B b MRScf CF 2FF 2 The MRS is constant Its geometric equi... View the full answer