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.