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Jane receives utility from days spent traveling on vacation domestically (D) and days spent traveling on vacation in a foreign country (F), as given by the utility function U(D,F) = 10DF. In addition, the price of a day spent traveling domestically is $100, the price of a day spent traveling in a foreign country is $400, and Jane"s annual travel budget is $4000.

a. Illustrate the indifference curve associated with a utility of 800 and the indifference curve associated with a utility of 1200.

b. Graph Jane"s budget line on the same graph.

c. Can Jane afford any of the bundles that give her a utility of 800? What about a utility of 1200?

d. Find Jane"s utility-maximizing choice of days spent traveling domestically and days spent in a foreign country.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M9900792
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