QUESTION 26: Consumer's Problem (16 marks) In the Alonso-Muth-Mills Model, assume that the consumer utility function is Cobb-Douglas and is given by: U = c./3q2/3 where q is consumption of floor space and c is 'bread (anything that is not housing) subject to c=y-tx - pq, where the price of bread is normalised to $1 Where: c=bread consumption y = income (measured in dollars) t = transport cost per kilometre x = distance from the CBD in kilometres p= rental price per square meter of floor space q = square meters of floor space in a dwelling The consumer earns an income of $2,000 working in the CBD A. In a central city location, where there are no commuting costs, the price of floor space is $5 per square meter. What is the consumer's budget constraint? Illustrate this on a graph. (2 marks) What is the utility maximising combination of floor space (q) and bread' (c) in the city centre location? Illustrate this on a graph (4 marks) What is the consumer's disposable income? (2 marks) II. III. QUESTION 26: Consumer's Problem (16 marks) In the Alonso-Muth-Mills Model, assume that the consumer utility function is Cobb-Douglas and is given by: U = c./3q2/3 where q is consumption of floor space and c is 'bread (anything that is not housing) subject to c=y-tx - pq, where the price of bread is normalised to $1 Where: c=bread consumption y = income (measured in dollars) t = transport cost per kilometre x = distance from the CBD in kilometres p= rental price per square meter of floor space q = square meters of floor space in a dwelling The consumer earns an income of $2,000 working in the CBD A. In a central city location, where there are no commuting costs, the price of floor space is $5 per square meter. What is the consumer's budget constraint? Illustrate this on a graph. (2 marks) What is the utility maximising combination of floor space (q) and bread' (c) in the city centre location? Illustrate this on a graph (4 marks) What is the consumer's disposable income? (2 marks)