(d) Find MRSBP . Do Elmira’s preferences have a diminishing Marginal Rate of Substitution? (e) What combination of Beef and Potatoes should Elmira buy to maximize her utility? (f) Determine Elmira’s utility at the utility maximizing choice.
Only need the answer to part (d), (e), and (f)
Question 1
Elmira has a monthly income of $200 that she allocates between two goods: Beef (B) and
Potatoes (P). Beef costs $6 per pound while Potatoes cost $1 per pound. Elmira’s utility
function is given by: U(B, P) = 2B + P Assume that both Beef and Potatoes are finely
divisible goods (so your answer may or may not be a whole number). This question
contains 6 parts, (a)-(f))
(a) Write down the equation for Elmira’s indifference curves. (Assume Beef is measured
on x-axis and Potatoes on y-axis)
(b) Depict Elmira’s budget line graphically and mention its slope. (Again, assume Beef is
measured on x-axis and Potatoes on y-axis)
(c) Illustrate some indifference curve(s) for Elmira.
(d) Find MRSBP . Do Elmira’s preferences have a diminishing Marginal Rate of Substitution?
(e) What combination of Beef and Potatoes should Elmira buy to maximize her utility?
(f) Determine Elmira’s utility at the utility maximizing choice.
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